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PSIRU Reports Report number: document.doc

Trends in Energy privatisation in centraland eastern Europe, 1998

Author(s): David Hall

Date: June 1998

Commissioned by: Public Services International (PSI)

Funded: PSI

Presented at: PSI Energy conference, Vilnius, June 1998

Published:

Notes:

© Unless otherwise stated, this report is the copyright of the PSIRU and the organisations which commissioned and/or financed it

The PSIRU was set up in 1998 to carry out empirical research into privatisation, public services, and globalisation. It is part of Greenwich University’s School of Computing and Mathematics. PSIRU’s research is centered around the maintenance of an extensive and regularly updated database of information on the economic, political, financial, social and technical experience with privatisations of public services worldwide.

This core database is finananced by Public Services International (PSI), the worldwide confederation of public service trade unions.

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Trends in Energy privatisation in central and eastern Europe, 1998.............................1

1. Privatisation and liberalisation policies in CEE....................................................3A. Electricity industry...............................................................................................................3

Ownership of electricity generation, transmission and distribution, 1998.....................3B. Gas industry........................................................................................................................5

Ownership of gas industries, 1998................................................................................5C. Private electricity generation and IPPs................................................................................6

2. Companies........................................................................................................6A. Multinationals: diversification and joint ventures.................................................................6

Multi-sectoral groups.....................................................................................................7 Joint ventures between 'competing' multinationals.......................................................7

B. EU-based electricity multinationals.....................................................................................8C. USA-based electricity multinationals.................................................................................16D. EU-based gas multinationals.............................................................................................18E. Gazprom............................................................................................................................19

Gazprom's companies.................................................................................................20

3. Energy restructuring:......................................................................................20A. Exports and trade of electricity in CEE...............................................................................20B. Internationalisation and competition: Scandinavia............................................................20C. Public enterprise................................................................................................................21D. Privatisations: prices, regulation and profit......................................................................21E. EU accession: nuclear safety and environmental regulations............................................21F. Gas: restructuring in central Europe..................................................................................22G. Gas: diversity of sources...................................................................................................22

4. Finance...........................................................................................................22A. Sources of finance.............................................................................................................22

Spreads: table of examples (company/project - pub/private - source - spread)...........23B. Pre-privatisation restructuring...........................................................................................23

5. Job cuts...........................................................................................................24A. Threats to jobs...................................................................................................................24B. Hungarian trade union agreement.....................................................................................25

6. General critiques of electricity privatisation.....................................................25A. No efficiency gain from privatisation.................................................................................25B. UK Electricity privatisation: who gained?...........................................................................26C. Recent problems...............................................................................................................27

7. Annexes: Who Owns Whom..............................................................................27A. Who Owns Whom in Sweden.............................................................................................27B. Who Owns Whom in the UK...............................................................................................28

Other UK energy companies........................................................................................28

8. ENDNOTES............................................................................................................................30

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1. Privatisation and liberalisation policies in CEE

A. Electricity industry

Privatisation of energy companies started in CEE 4 years ago, but is not universal or total. The table below shows the current ownership in the first three columns, and a summary of policies in the last column.

No other country has followed the example of Hungary, which sold shares in all its distribution companies and some power stations to multinationals in 1995. In the Czech republic, some shares in distribution companies have been sold, but as a result of municipal choices not because of state policy.

In both Hungary and Czech republic new governments are being formed following general elections. In both countries the new leading new party had stated its opposition to existing privatisation policies.

Albania and Estonia both intend to sell shares in some distribution companies; Poland plans to allow municipalities to decide (as has happened in the Czech republic). A similar process of local decisions to sell shares to private companies seems to be happening in Russia as well,

In countries seeking EU membership, the future need to comply with the EU's electricity directive is becoming more important than the wish to privatise. The directive requires liberalisation of generation, and some scope for direct sales, but does not require privatisation.

Restructuring policies now seem to focus on separating the transmission grid, which may remain in state ownership, while some private generation is allowed, and distribution companies are left for municipal decision. A number of countries - eg Poland, Romania, Bulgaria, Latvia - envisage a new structure of this kind.

Ownership of electricity generation, transmission and distribution, 1998 (S=state; M=municipal; P=private)Country Gen Tran

sDist Policy

Hungary S+P S P/M New government party Fidesz said in opposition that will stop sale of MVM power stations and grid, but new IPPs OK.1

MVM will get debt relief to prepare for privatisation, but will be sold to investors not multinationals. 2

1 " Hungary's most popular opposition party will suspend the privatisation of the energy sector if it wins elections in May, its leader said on Thursday. But he said private companies would be allowed to put forward bids to build greenfield power stations. 'We are talking about (suspending) the privatisation of what is owned by the state,' Viktor Orban, leader of the opposition centre right Young Democrats Fidesz, told Reuters. 'If somebody would like to create a new energy plant, that's a greenfield investment, that's okay, why not?' Since 1995, Western utilities have bought large stakes in Hungary's power plants and energy distribution companies in the most ambitious energy privatisation programme of any post-communist state. But the sell-off has led to steep consumer price rises as the foreign firms, including RWE, Bayernwerk, Tractebel, Powergen, Electricite de France and AES Summit, seek to make their investments profitable. Only the national grid operator MVM, which also owns the nuclear

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Czech S/P S/P M CEZ is 33% sold to investors. Transmission may be split into a separate company. Social democrats - new government - opposed energy sales, so future uncertain 3. Some shares sold in distribution companies already, although no formal plans until just before election.4

Poland S+P S M Plan is that PSE remains in state hands, will control grid and be privatised last. Power stations will be separated off, and may be privatised. Distribution is in hands of municipalities, who may privatise. A few power stations are already privatised, and EdF buys one in Krakow.

Slovakia S S S No privatisation plans for SE.power station at Paks, has remained entirely in state hands and is due to be privatised some time in 2000. Hungary's Socialist government is expected to decide on the form of MVM's privatisation by the end of the year. 'We think the sale is a bad idea,' Orban said. He added that while he welcomed the construction of new capacity, the current MVM tender for 1500 megawatts of new capacity lacked transparency. 'The current tender details are secret - as a Hungarian member of parliament I am not allowed to get detailed information,' Orban said. 'We want to end the secrecy around information of public interest.' Pre-qualification technical bids for the tender to build new plants for commissioning between 2002 and 2005 drew over 30 bidders at the end of last year and the deadline for the final round of formal bids is September 10. Recent opinion polls have shown Fidesz closing the gap on the most popular party, the Socialists, who currently govern in a coalition with the liberal Free Democrats. One poll put only two percentage points between the two front-runners, who have pulled well clear of the other parties. The general election will be held on May 10, with a second round of voting on May 24." 16 Apr 1998 Reuters2 " The Hungarian government is expected to decide on the form of national grid operator MVM's privatisation by the end of the year but the firm is unlikely to be sold to strategic investors, a top MVM official said. 'It is more and more accepted that MVM should not be sold to strategic investors,' MVM's Strategic Director Istvan Bakacs told Reuters in an interview. 'There should be an announcment on this somewhere close to the end of the year.' Bakacs said the timing of the move would depend on a new privatisation law to be passed after elections in May which may alter the current stipulation that MVM remain 50 percent plus one vote in state hands. The law could also separate off nuclear power station Paks and electricity network developer Orszagos Villamos Tehereloszto Rt (OVIT) for a separate sell-off, he said. Since 1995, large portions of Hungary's generation and regional distribution sectors have been sold to Western utilities in the most ambitious privatisation programme of any post-communist state. Strategic investors RWE , AES Summit , Tractebel and Powergen have all bought stakes in Hungary's power stations and all but Powergen are bidding in MVM's current tender to build 1500 megawatts of new capacity by 2005. Bakacs said that for such companies to have a stake in MVM could constitute a conflict of interest during and after the tendering process, which he does not expect to be completed before the spring of 1999. 'I know that many of the owners of the generating and distributing companies would like to have a seat on the MVM board, but it would be crazy in view of the tender,' he said, adding that the need for strategic investment in the power sector was stronger in 1995 than it is now. Bakacs said the more likely scenario was a flotation, an IPO or a direct sale to financial investors. 'It would be much more complicated to prepare an IPO than to sell to strategic investors,' he said. 'Therefore the earliest privatisation would be in 2000.' Bakacs said MVM reduced its losses last year to an unconsolidated 1.3 billion forints (Dollars 6.1 million) from 12 billion forints in 1996 and said the deficit was entirely due to privatisation revenues below the book value of the assets sold. 'MVM operational margin last year was actually positive, mainly from the 25 percent increase in electricity prices at the beginning of 1997,' he said. 'The losses are a result of privatisation.' He said he expected that after the sale late last year of Bakony and Pecs power plants the company would move into profit in 1997 as the power plant sell-offs come to a end. 'For 1998 we are clear except for the Vertesi power plant,' he said. 'It is pretty sure it can only be sold with a loss but with the price increases . .we can already see positive figures.' Bakacs said MVM had lost 100 billion forints on the sale of power stations and other assets under their book value since 1995 and would be asking state privatisation agency APV for an equity increase.

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Estonia S S S Negotiating with NRG over plans for jv to run existing power stations, revised from first version but still with guarantees expected on market share & price. 5 IVO interested if NRG talks fail 6 Plan is for rest of energy to be treated separately to make it first commercial then ready for privatisation 7 State will sell 49% of shares in two district electricity cos to strategic investors by negot (eg IVO, Vattenfall) 89

Latvia S S S Agreed sale of Latvian Energy and Gas as part of IMF deal, but delayed by investigation into 'missing millions' 10, with entire board sacked in Dec 1997 11 and elections come in October. 12 Format is for split of Latvenergo, with state to keep role in grid and hydroelectric. 13 Other power stations

'We shall be asking APV to raise MVM's capital,' he said. 'We would be happy to get 30 billion forints.' Bakacs said MVM's privatisation was complicated by the prospect of Hungary's accession to the European Union, talks on which began this week. It is expected to happen in 2002 at the earliest, but the country would have to adopt the EU's Electricity Market Directive prior to joining. The directive opens up power monopolies to competition. 'We will be losing the monopoly right to transport power, the monopoly right to build 400 kilowatt connections and the monopoly on the import and export of electricity,' he said. 'On the other hand we can still become a market player and get back our own power stations, or we can be minimised like the National Grid in Britain and remain a regulated business only selling the service of the transport of power.' Bakacs said the government should state its plans for implementing the EU directive when it announces its privatisation plans for MVM later in the year. 'If the government does not take into account the EU issue the investors next day will ask 'I know who MVM is today, tell me who it will be tomorrow,' he said" 1 Apr 1998 Reuters3 "16 Mar 1998 HOJDAR WARNS AGAINST HASTY PRIVATISATION OF POWER DISTRIBUTORS: CSTK ECOSERVICE Reuter Textline (Q2:23) PRAGUE Social Democrat MP Josef Hojdar has warned against a hasty privatisation of the power distributing companies and CEZ as outlined yesterday by Finance Minister Ivan Pilip on the '7 or Seven Days' current affairs programme on Nova TV. 'Pilip understands the privatisation of the power distributors as the final solution and sees no further,' Hojdar told CTK today. The Social Democratic party CSSD on the other hand regards privatisation in the energy sector as one of the means towards achieving a balanced, long-term energy policy. Pilip expects the privatisation of the 16 power distributors to guarantee that pressure is put by their new owners for cutting costs and improving services. 'It is the duty of the state to ensure that people's and companies' access to energy and its price correspond to their possibilities. Pilip's words about the need for speedy privatisation put the Czech energy sector at stake,' Hojdar said."4 "19 Mar 1998 GOVT TO DECIDE ON POWER COMPANIES PRIVATISATION BY END OF JUNE: CSTK ECOSERVICE Reuter Textline (Q2:26) ZIDLOCHOVICE The government will decide on the method for privatising the 16 regionalpower and gas companies by the end of June, spokesman Vladimir Mlynar said today. The government will give preference to public tenders and will not take any irrevocable steps until it has submitted a timetable of privatisation steps to Parliament, Mlynar said. Mlynar stressed that the government's decision does not violate Josef Tosovsky's promise made before the confidence vote in Parliament earlier this year. 'We have not taken any irreversible steps,' said Mlynar. The privatisation of the power and gas distributors, in which the state holds stakes of between 46 and 59 percent, will be complicated, said Mlynar. The government is afraid that the state-owned stakes might shrink and foreign investors might move into the companies. 'Municipalities have been using their shares in the companies as collateral, when obtaining cash from German companies, for example,' said Mlynar. The government yesterday decided to divide the as yet unprivatised large companies with state-owned stakes into three categories. The energy companies fall into the second category, alongside Komercni banka, Ceska sporitelna, CSOB, OKD and Budejovicky Budvar. The privatisation of these companies will be prepared but not completed before the elections in June."5 "12 May 1998 US NRG PRESENTS NEW ENERGY PLAN FOR ESTONIA: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:38)

TALLINN

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would be sold 35% to strategic, 10% to local investors, state keeps rest; grid would be kept 65% by state, 10% local invest, 13% each to two strategic investors 14

Lithuania S S+P S Privatising power export transmission lines links to west (see Calenergy); writing-off debts of elec and gas companies (see finance); separated loss-making heating operation from Lietuvos Energija 15

Romania S S S Plans to break up RENEL, then privatise 16

Bulgaria Will start selling smaller plants, then bigger ones, with munics getting priority; Kozlodhuy will remain with NEC; NEC will remain as 'single buyer'. WB makes restruct and privatisation of NEK=NEC a condition of new phase of loans.17 Plans to privatise electricity depend on price rises 18.

US power group NRG Energy, part of Northern States Power Co, on Tuesday presented a new plan for the privatisation and modernisation of the electricity industry of the Baltic state of Estonia. NRG, which was forced to go back to the drawing board after the Estonian government rejected a first business plan presented late last year, was hopeful the new proposal would be accepted. 'Our hope and vision are that these business contracts will find approval. We believe that this business plan is good for Estonia and NRG,' NRG Energy Estonian director Hillar Lauri told a news conference. Under the new proposal NRG would pay Dollars 67 million for a 49 percent stake in a new joint venture, with the state holding the rest. The power firm expects to invest more than Dollars 600 million in the first 15 years of the project. Lauri said that the new business plan guaranteed NRG a market share of 75 percent for the first eight years and 50 percent for the seven years thereafter. 'The rest of the market would be a free market, everybody could come and build their own power plant,' he said. 'This would create the conditions for a free electrical energy market in Estonia,' he added. Lauri said that the company's new business plan contained market share guarantees that were 31 percent lower than the previous plan and that NRG's investment would be 16 percent lower. The joint venture company would consist of Estonia's two power stations, the Eesti and the Balti power plants, which produce about 90 percent of the country's electrical energy. The two plants have been valued at approximately 884 million kroons (Dollars 62.3 million). Both plants are fuelled by oil shale, Estonia's only natural resource. The government objected to NRG's first business plan on grounds that it was impossible to give guarantees regarding the electricity market, prices and resources. Lauri said he expected a government decision by June 24. (Dollars 1 = 14.18 Estonian Kroons)." "16 Jan 1998 NRG stays in Estonian privatization derby: Power Generation Technology and Markets Predicasts Newsletters (Q1:64) NRG Energy's plans to privatize Estonia's two largest power plants received a major boost last month when the Estonian government agreed to give the Minneapolis-based company "a second chance" to rework and present a revised development plan. The two oil shale-fired plants in Narva involved in the privatization are operated by Eesti Energia and have a total installed capacity of 3,000 MW. Last September, the Estonian government rejected NRG's development plan under a Letter of Understanding signed between the company and Estonia at the end of 1996 (PG 10/17/97, 9/26/97). At the time of the rejection, Jaak Leimann, Estonia's trade and industry minister, said he would open up the privatization to international tender. However, NRG has convinced the Estonian government to delay the launch of a tender pending the completion of its revised investment plan. "It has been decided to postpone the tender process in order to give NRG a second chance, which will represent a complete overhaul of its original submission," said Mari Koppel, head of the Ministry of Economy's energy department. According to Koppel, should NRG decide against presenting a second plan, or if such a plan is rejected by government, the government intends to place Eesti Energia and its core assets on the current privatization list of companies earmarked to be sold by international tender in 1998. "Any international tender would only proceed on the basis that Eesti Energia's core business areas -- power production, transmission and distribution -- would be first incorporated into stock companies ahead of any privatization offer," said Koppel. Trade and industry minister Leimann told the Estonian parliament that the "key issue" surrounding the future of Eesti Energia is to determine whether or not it will be possible to cooperate with NRG Energy. "What is clear is that the revised plan presented by NRG Energy must contain a much stronger cash element," said Leimann. NRG had planned to transfer two of the Narva plants to a new joint venture company controlled by Eesti Energia, and in which NRG would pay Dollars 67

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Earlier uncertainty about amount of share sale 19

Albania S S S Elec single central state, but plan to priv 30% of shares in distribs in 3 towns - Elbasan, Vlore and Shkoder (see note 46+). Industry will be charged full economic price for electricity, consumers will retain subsidy). 20 Problems of unpaid bills, demand soared after communism; but also exports; plan (in Feb 98) was to offer mangt contract for whole system to private company for 3-5 years, then privatise 21.

Bosnia S S Elektropriveda(s): now exporting, cooperating, plan to merge; recovery financed by WBB etc loans; will be 'last to be privatised' 22

Croatia S S M Plans for ultimate privatisation of 25% of HEP shares, and million for a 49% interest (PG 4/25/97). In 1996, NRG won the exclusive negotiating right to privatize the Narva plants via the Letter of Understanding. The plan included a five-year modernization scheme valued at Dollars 434 million up to 2005 (PG 1/31/97). Eesti Energia operates three production plants, including the Narva- based Eesti Elektrijaam, which came into operation in 1969, which produces 1,610 MW of electricity and 84 MW of steam heat. The second plant, also based in Narva, is Balti Elektrijaam, built in 1959, with an installed capacity of 1,390 MW of electricity and 690 MW of heat. Eesti Energia's third plant, Iru Elektrijaam, is located at Lasnamae, outside the capital Tallinn. Using gas as its primary fuel, the plant was built in 1980 and generates 190 MW of electricity and 827 MW of heat. If all generating units are included, Eesti Energia's combined installed capacity amounts to 3,268-MW electricity and 1,601-MW heat, accounting for 99% of all electricity generated in Estonia." 6 "19 Feb 1998 ESTONIA-FINNISH IVO STILL HOPEFUL ON EESTI ENERGIA: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:26) HELSINKI Finnish power producer Imatran Voima (IVO) is waiting in the wings to buy Estonian power firm Eesti Energia if a rival bid for the company fails, a top IVO executive said on Thursday. US NRG Energy, owned by Northern States Power , has exclusive rights to negotiate with the Estonian government on Eesti Energia's privatisation and a decision is expected in February. 'We are interested (in Eesti Energia) if the talks between the Estonian government and NRG do not lead anywhere,' IVO business development vice-president Mikko Ronnholm told Reuters by telephone. Ronnholm also said Imatran Voima was prepared to invest about 1.5 billion markka in Eesti Energia and that it was interested in expanding its operations to distribution networks and power production in Estonia."7 "24 Mar 1998 ENERGY TRENDS ON THE UPTURN AFTER SOME LOCAL DIFFICULTIES: PETROLEUM ECONOMIST Reuter Textline (Q2:173)Following separation from the former Soviet Union, the Baltic states havesuffered severe economic downturns. But, writes Gordon Feller, matters areimproving, especially in the Estonian electricity industry.The energy sectors of the three Baltic states have seen a number of major,negative trends in the 10 years from 1985 to 1995. Separation from theformer Soviet Union (FSU) was followed by a severe economic crisis, and bothenergy production and demand decreased strongly. Dependency on energyimports remained at about 60%.Between 1991 and 1993, GDP dropped by about 40%, but it has stabilisedsince. Behind this decline was the disruption of trading links with otherFSU republics, the increase of relative energy prices, the shift to a marketeconomy and the reorientation of trade towards western Europe.Below averageThe electricity share in final energy consumption remained stable in theindustrial and household sectors, at 16% and 12%, respectively. These levelsare well below the European average and suggest a large potential for growthin electricity in the future.Electricity generating capacity has remained constant over the last fouryears, at about 11 GW. Thermal power stations represent 63% of capacity,complemented by nuclear energy (22%) and by hydro (15%). Thermal powerstations are fired mainly by solid fuels (52% in 1990), oil (15%) and gas(33%). More recent figures need to be considered before deeper analysis, but

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stock market listing (abroad?) - but not yet. 23 Regional cos owned by Munics.

SlovenijaFYR Serbia

S S EPS asking for foreign partners to invest in new with view to ultimate privatisation 24

Russia S S M Sale of 15% of lenenergo shares in Dec 1997. 25 with Ivo increasing shares from 1% 26

Ukraine S SBelarus S SMoldova S S

the contribution of natural gas has been drastically reduced owing to thedifficulty for Baltic countries of securing imports from Gazprom.Amid the bad news are trends that point to some positive developments in theBaltic energy sector.As energy consumption declined more slowly than other economic activitiesbetween 1990 and 1993, energy intensity rose by about 30% during thisperiod. Baltic countries are gaining in energy intensity since thetransition to the free market began, although rapid shifts can be broughtabout by simply closing or opening one large plant.The Baltic states are importers of oil and gas from the CIS. These fell by46% between 1990 and 1993, but are rising again.However, the flow of oil to the states could be curtailed to both refineriesand export terminals, if the proposed Baltic Pipeline System (BPS) is built.This pipeline, proposed by Russia's oil pipeline operator Transneft, wouldbring oil from west Siberian fields to a new terminal facility on the Gulfof Finland.Transneft and the Ministry of Fuel and Energy will shortly name the winnerof a tender for the right to draw up an investment plan for the BPS.Transneft vice-president Sergei Ter-Sarkisyants said that tenders weresubmitted by three firms: US-based Gulf Interstate Engineering, MichaelBaker Corporation of the US, and Kvaerner John Brown, the Scottish divisionof the Norwegian engineering giant.The World Bank and the European Union (via its TACIS programme) have up toDollars 3m and Ecu3m, respectively, to pay for the investment plan. Thatmoney will also finance an environmental study of the planned pipelinenetwork. The system will be made up of 2,633 km of pipeline, including someparts already operated by Transneft, and new pipeline from the Arctic fieldof Kharyaga to Usa and from the refining complex of Kirishi to a terminalfacility on the Gulf of Finland east of St Petersburg.The project will be carried out in two stages, the first of which will beable to carry 7m-12m tonnes a year (t/y) of crude. That will rise to 30m t/ywhen the second stage of the project comes on line, to carry oil from fieldsin the Timan Pechora province in Arctic Russia.Radical reformsEstonia, in particular, shows signs of being poised for strong economicgrowth. It has made the most rapid and radical reforms and is one of sixcountries awaiting negotiations for EU expansion.Electrical power is generated mainly using Estonia's oil-shale resources,which account for approximately 90% of domestic fuel. As it is a domesticresource, electricity rates in Estonia in 1995/96 were the lowest in theBaltic region. The country's two large oil shale-fired electric powerplants, the Estonian Power Station and the Baltic Power Station, were builtduring the Soviet era to supply Russia's northwestern region withelectricity.During 1996, the board of the state enterprise, Eesti Energia (EstonianEnergy), together with the ministry of economic affairs and the Estonian

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B. Gas industry

Formal privatisation of gas companies has been carried out by Hungary through sale of shares in MOL, the gas transmission company, and in the regional gas distribution companies. Estonia and Latvia have already sold shares in their gas companies, in both cases to a combination of Ruhrgas and Gazprom, and Lithuania may do the same. In the Czech republic, multinationals have bought shares in one or two gas distribution companies. Slovakia has privatised gas storage facilities - the only European country to do so - for which it has been criticised by the International Energy Agency.

Privatisation Agency, concentrated on the preparations necessary to changeEesti Energia into a corporation. Negotiations were conducted with NRGEnergy, a subsidiary of Minnesota-based Northern States Power Company, tocreate a joint venture to operate the large power stations. In September1997, the Estonian government turned down the business plan that had beenprepared to form the joint venture - the prospects for NRG's participationin Estonia's energy sector remain unclear.Estonian government officials have offered various public positions on howit intends to proceed: some statements have suggested that the governmentwill go ahead with an international tender, while others have indicated thatthe government will talk to NRG on the basis of several conditions, most ofwhich are negotiable.Separate treatmentAlthough questions remain about how the government intends to proceed withthe privatisation of these two power stations, other aspects of Estonia'selectricity system, including the distribution networks, other generatingfacilities and the transmission grid, are to be treated separately.The government has approved the restructuring of Eesti Energia to transformit into a joint-stock company. The restructuring programme involves thefollowing:- Contribution to its effective functioning;- Transparent price formation;- Preparations for privatisation;- International integration; and- Maximum utilisation of the capacity of industrial power plants.Opportunities exist in Estonia's electricity sector that are attractinginternational interest. The Finnish company, Imatran Voima, has an office inEstonia, and the Swedish state-owned power engineering group, Vattenfall,opened an office in Estonia in September 1997, sharing in the privatisationof distribution networks and fuel systems of the Estonian power sector.A recent report stated that production of electricity constituted 3.4% oftotal industrial sales in 1996 and production of heat for 2.2%. Comparedwith 1995, electricity consumption in Estonia grew by 6.6% in 1996.In 1996, household electricity consumption grew by 20.7% from 1995.This growth resulted from the use of additional heat-generating householdappliances during the winter of 1996; electricity consumption by districtheating systems also increased. Moreover, the favourable off-peakelectricity price, 49% of the day-time price, also contributed to the growthof electricity consumption by private households. Network losses werereduced by 3.8%.Electricity exports rose by 9.5%, with exports to Latvia up by 24.1%.During the second half of 1996 electricity exports to Russia represented93.3% of electricity sales to Russia during the whole of 1995.Taking average electricity consumption and average income per family intoconsideration, direct spending on electricity accounts for 2% of the incomeof an average Estonian family. The rise in electricity tariffs for household

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The major issues in gas in the region are sources of supply, and the development of pipelines and 'rings'. For many countries in CEE, it remains politically important to find alternatives to Gazprom. At the same time, many countries remain heavily indebted to Gazprom because of past failure to pay for gas which was supplied. 27

The liberalisation of gas supplies is making more alternatives available, but this also makes it harder to maintain a political policy on gas suppliers. For example, the Slovak gas company, which uses Gazprom gas, has an economic advantage in buying up shares in neighbouring Czech gas distributors which are trying to use gas which is more expensive.

consumers resulted in a 0.4% growth in the consumer price index.Taking stock of oil shaleThe redevelopment of the Estonian economy increased electricity consumption.At the same time, there was a decline in the amounts of oil shale importedfrom Russia, and a subsequent reduction in exports to Russia of electricitygenerated from the imported oil shale. Both domestic production of oil shaleand its consumption rose by 10% in 1996. The oil shale stockpile was reducedby 564,000 tonnes.A major step taken in 1996 was the opening of credit lines, through banks inCanada and the US, and AS Eesti Toostusliising (an Estonian leasingcompany).Significant changes took place in the structure of RE Eesti Polevkivi(Estonian Oil Shale Company), in 1996, which was transformed into ajoint-stock company, AS Eesti Polevkivi. Several production units, such asmines and open cast pits became subsidiaries of AS Eesti Polevkivi. Severalproduction units, such as mines and open-cast pits became subsidiaries of ASEesti Polevkivi. The property of the subsidiaries was revalued and, inNovember 1996, following a directive by the Ministry of Economic Affairs,the former subsidiaries were converted into 14 joint-stock companies, withconfirmed share capital and articles of association. In 1997, after thesubsidiaries had been registered in the Trade Register, they startedoperating as affiliates of AS Eesti Polevkivi.In co-operation with Dynamit Nobel, of Germany, a new joint venture -Dynamit Nobel Eesti OU - was formed, and the construction of an explosivesmanufacturing plant was started. The explosives will be used primarily inoil-shale mining activities.The restructuring of AS Eesti Polevkivi, in preparation for privatisation,aims to:- Provide a reasonable balance between underground and open-cast mining ofoil shale;- Introduce modern technologies;- Conclude long-term contracts;- Introduce new mining areas;- Rehabilitate mined areas; and- Promote competition between the subsidiaries.Planning for the futureIn Estonia, an energy conservation programme has started, financed from thenational budget and from state-guaranteed foreign loans. At the same time,there was an increase in the financial contribution to energy conservationfrom other sources, not directly related to the state.From the 1996 national budget, Ecr13m (Dollars 895,000) was allocated forrenovation and Ecr17m for services to be bought by the state. Of theservices bought by the state, contracts were concluded as follows:- Renovation in social establishments, 32%;- Renovation in educational establishments, 42%;- For the initiation of a World Bank loan for the reconstruction of boiler

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Ownership of gas industries, 1998 (S=state; M=municipal; P=private)Country Owner Policy

Hungary S/M/P MoL: shares sold to investors in 1996Czech republic

S/M/P Transgas: hit by no price rises allowed, so had to sell on gas at loss. But keeps monopoly - regional distribs prevented from importing direct. Not to be privatised. Distrib privs frozen, but some shares bought anyway. 28

Poland S Gas: POGC - 45,000 emp - now single monolith. But plans for breakup - sell construction cos etc - oil/gas split; then split and priv

plants, 12.2%;- For business plans for the towns of Parnu and Narva, 3.2%; and- For energy-related legislation, databases, information campaigns,development strategies, auditing, conferences, seminars and investigations,11.6%.Loans from the EU, the EBRD, the World Bank, the IDA and the EIB have beenraised. The majority of loan financing has gone to regional energy projects.As for the towns, the major project has been the reconstruction of theheating system of Tallinn.Implementing the planIn Estonia important decisions on energy policy are under consideration,primarily on the gradual substitution of oil shale with more effective andenvironment-friendly energy sources. In addition to the traditional use ofgas for heating, it is also economically feasible to use gas in smallercapacity power plants (50 MW and less). The share of gas in heat productionis constantly increasing and the construction of local gas heating systemsis to continue.AS Eesti Gaas (Estonian Gas Company) has begun to use a pipeline connectionto Latvian gas storage facilities, creating more flexible gas flows. SakuBrewery, located near Tallinn, is one of the largest new consumers. It willalso be feasible to reconstruct old electricity plants in northern Estoniain the future.Energy lawThe principles of the energy policy of the Estonian government are inaccordance with those of the EU. The strategy of energy generation involvesthe promotion of schemes based on local fuels, enhancing the efficiency ofenergy production and consumption, raising the competitiveness of theEstonian economy and reducing damage to the environment.The Convergence of Energy Policies is a research project, which is beingcarried out within the framework of the Multi-country Energy Programme ofthe EU-PHARE programme. The result will be the harmonisation of Estonianenergy policy with that of the EU.INVESTMENT PROGRAMMES FOR EESTI ENERGIA IN 1997/98Power plants:- Reconstruction of the chimney at Iru Power Plant: ECr10.4m (Dollars710,000);- Installation of transformers and upgrading of electrical equipment at theBaltic Power Plant: ECr41.2m;- Environmental protection programmes at the Estonia Power Plant and BalticPower Plant: ECr22.5m; and- Reconstruction of technological connections and security systems of powerplants: ECr29m.Networks:- Reconstruction and expansion of 0.4kV, 10kV, 15kV networks: ECr104m;- Establishment of measuring stations on commercial basis: ECr20m;- Upgrading and reconstruction of the equipment at substations: ECr199.35m;

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of gas.Slovakia S Gas state unified under SPP, no privatisation plans; but storage

already privatised - uniquely - and criticised by IEA - uniquely. 29

Estonia P/S 41% Gazprom and 20.5% Ruhrgas; last 10% of state shares to be sold, probably to Neste (rest with small investors) 30

Latvia P/S 16.25% each Ruhrgas/Preussen and Gazprom. Another 30% to be sold June/July, with 10% for employees31

Lithuania S Selling 15% of shares in Lietuvos Dujos (gas co) 32 with interest from Gazprom and/or consortium of Ruhrgas/Preussenelektra/GdF 33 34

Romania SBulgaria S Gas will not be privatised until supply diversified 35, but will be

and- Modernisation of the energy sector communication system: ECr17.4m.Investments will be allocated for both power plant modernisation and for thereduction of environmental pollution."8 "29 Mar 1998 BALTIC NEWS SERVICE: ESTONIA: METHOD OF PRIVATIZATION OF POWER NETWORKS DECIDED: World Reporter (Q1:29)

The Estonian Privatization Agency council Wednesday ruled to sell powernetworks of the western Laanemaa region and Narva into private hands throughsingle-stage prenegotiated bidding by way of equity financing. EconomicsMinister Jaak Leimann said at a news conference the privatizationannouncement will be published before Midsummer Day. In accordance with theprivatization plan, the state-owned shares in the Narva power company willbe sold into private hands so that the government will retain an at least 51percent stake in it following the enlargement of the share capital andintroduction of a strategic investor. The Laanemaa power company wants toexpand its share capital by at least 50 percent to invest in the developmentand upgrading of the regional electricity network. Several large foreignelectrical energy generators are interested in privatizing the powerdistribution network of Estonia's western Laanemaa region, the localnewspaper Laane Elu writes. Apart from Sweden's Vattenfall and the FinnishImatran Voima, also Norway's AEG has been visiting for a first-handimpression of the network, the paper said. The Norwegian company plans toparticipate in bidding through Estonia's Hoiupank. In addition, alsoEstonian investors have shown interest."9 "THE BALTIC STATES of Estonia, Latvia and Lithuania are showing signs of speeding up the liberalisation and privatisation of their respective power sectors. Reform programmes were in each case initiated several years ago, but have made little subsequent progress.Estonia eyes exports Estonia has witnessed several developments in recent weeks. A cogeneration plant predicated on the export of much of its electricity to Scandinavia has been announced by a Finnish-Estonian joint venture. Meanwhile the US's NRG Energy has reached a critical stage in its protracted negotiations over the acquisition of Estonia's main thermal generating plants.The new Tallinn cogeneration plant has been proposed by Finland's Helsingin Energia and the local Tallinn Soojus. Helsingin Energia currently produces over 3.7TWh of electricity from three cogeneration plants near Helsinki, and has direct sales of around 3.5TWh. Tallinn Soojus is the municipal district heating company serving the Estonian capital.A feasibility study is being undertaken into the cost, location, size and fuelling of the plant. The natural gas or coal-fired plant would comprise between 150MW and 500MW of electric capacity, and would also supply heat to the city of Tallinn.Up to four-fifths of the electricity would be sold into the Finnish and Nordic power markets if a plant at the higher end of the capacity range proved to be economically feasible. Plans to build a transmission line from Estonia to Finland have existed for some time, while studies are under way into the completion of a grid linking all the countries of the Baltic region.One of the main beneficiaries of the transmission links would be Estonia's two oil shale-fired power stations near Narva. The Eesti and Baltic plants currently account for 95% of the

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privatised. 36

Albania SBosniaCroatia S INA: plans for later privatisation.Slovenija S/M Gas: State owns 24.5% of Geoplin, six of the 12 regional gas

distributors hold 34.6%, with the remaining 40.9% held by 133 shareholders, including the other six distributors. IMF says too much like old Yugoslav system, with parallel workers council.

Russia Gazprom 40% state owned, rest employees/investors. Ceiling of 9% on foreign ownership.

country's electricity production, and at present export power to Latvia and Russia.The 1,435MW Baltic plant was commissioned in 1959, while the 1,610MW Eesti complex entered service in 1969. Both plants supply heat as well as power.The two complexes are currently owned by the state power utility Eesti Energia. However, the US's NRG Energy is said to be at a critical stage in its plans to acquire a 49% stake in the facilities.NRG has been pursuing the acquisition of the plants for several years. The company signed a memorandum of understanding to operate and jointly own the plants with Eesti Energia in March 1996 (see GPP 11/12).Under the agreement, NRG offered to make a US#67m cash payment, and to invest US#434m over the period to 2005. However, the offer was formally rejected in October 1997 as being too low, and NRG was asked to submit improved terms.NRG has now submitted a revised offer. However, its acquisition and rehabilitation of the plants remains dependent on a number of conditions being met by the Estonian authorities.The preconditions include an increase of at least 25% in Estonia's retail power tariffs, which currently average the equivalent of only US#0.03/kWh.NRG is also seeking a 10-year power purchase agreement backed by government guarantees.The government has resisted both stipulations to date. The potential impact of the proposed rise in retail tariffs on the government's popularity is compounded by the problem of squaring the 10-year power purchase agreement with its commitment to introduce an element of market liberalisation by 2003.The Estonian authorities have indicated that it could begin negotiations with other potential investors if the deal with NRG fails to come to fruition. Germany's Preussenelektra has been suggested as one of the main rivals for the acquisition.The Estonian authorities have also said that they will commence the privatisation of the Narva and Laanemaa power distribution systems in late 1998 or 1999. Finland's IVO Energy and Sweden's Vattenfall are regarded as likely contenders for the two networks.Lithuania looks west Estonia is not the only Baltic state intent on exporting electricity into the liberalising western European market. Lithuania advanced its plans to export a substantial amount of power in early April.The Lithuanian authorities chose the Power Bridge consortium to begin negotiations on the construction of a US#400m transmission line to sell power to western Europe via Poland. The consortium comprises the US's Stanton Group, CalEnergy, Duke Power and Siguler Guff & Company, together with Germany's Siemens.Negotiations with the consortium will continue for two months, according to the Lithuanian authorities. If the parties fail to reach an agreement, discussions will be opened with the US's Enron, which was the runner-up in the tender.The Power Bridge consortium was chosen as the preferred bidder on the basis of its proposal for a 1,000MW converter station. Enron offered only a 600MW station, according to the economics ministry.The successful bidder will be required to finance and construct the transmission line, which is expected to take around two years to build. In return, Lithuania will sell the winning bidder a minimum of 6TWh of power for a 10-year period, at an initial price equivalent to US#0.025/kWh lower than the price in western Europe.Lithuania has a substantial surplus of generating capacity. Domestic consumption was only 11.3TWh in 1997, whereas installed capacity was capable of producing almost 30TWh.

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Ukraine S Gazprom asks for energy shares to pay off debts 37

BelarusMoldova

C. Private electricity generation and IPPs

There has been a worldwide growth in interest in independent power production (IPP) in the last few years, which has been further encouraged by the EU directive.38 In theory, IPPs can set up and compete to sell electricity to the grid, or direct to customers, more cheaply than other generators. It has been attractive to many

Privatisation of Lithuania's power assets is expected to be more protracted than in the other Baltic states. The state currently holds an 86.5% stake in Lietuvos Energija, which owns and operates the national grid and distribution system, together with most of the country's power generating facilities.The main reform implemented to date has been the divestment of Lietuvos Energija's district heating facilities to municipal or other public bodies.This included the transfer of two cogeneration plants to the municipal authorities of Vilnius and Kaunus in 1997.However, a more radical privatisation programme will be initiated, with Lietuvos Energija's distribution business scheduled to be spun off in 1999.The sale of the company's power generation assets is expected to take place in the longer term.The success of the sales will depend on a substantial increase in retail power sales tariffs and the introduction of a more transparent legal and regulatory framework. These will be essential, especially given the substantial investment required to rehabilitate and upgrade the company's assets.International interest in the sales could be substantial, with Nordic and north European countries expected to be prominent. Sweden's Vattenfall, Norway's Statkraft, Finland's IVO and Germany's Preussenelektra have all expressed interest in the past.Latvia moves to sale The sale of Latvia's power assets has also been revived. The government has announced that Latvenergo will be unbundled by October 1998, and strategic stakes offered in the newly formed generation and distribution companies.The government envisages that Latvenergo's thermal power stations will be corporatised, and a 51% stake sold to a strategic investor. The remaining shares will be offered to local investors, the Riga municipal authorities and the power plants' employees and managers.Latvenergo owns just under 1,500MW of hydroelectric capacity at three sites and a 520MW gas-fired thermal plant at Riga. Much of the capacity is antiquated and in need of rehabilitation.A minority of the shares in Latvenergo's transmission and distribution assets are to be sold, with two 13% stakes in the distribution company going to strategic investors and around 10% of the shares being offered to local investors.The privatisation of Latvenergo has proceeded slowly and unevenly. The sale was first announced in March 1996. In early 1997 ten international companies submitted preliminary bids for a 35% stake in the integrated utility, with the bidding at that stage expected to be concluded by the middle of 1997.The latest move to sell Latvenergo's assets will be backed by the creation of a new regulatory framework as part of the country's proposed energy law.Interest in the sales is expected to be strong, with Denmark's SK Power, Germany's Preussenelektra, Finland's IVO and Sweden's Vattenfall expected to be among the bidders." 01 Apr 1998 FT Bus Rep14 "20 Mar 1998 Latvia produces energy law: Power Generation Technology and Markets Predicasts Newsletters (Q1:37)

The Latvian government has approved the first draft of the country's newenergy law which gives the government control of key areas of the energysector, including power production, imports, distribution and divestments.

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countries as a way of getting large investments in new power plants made by the private sector.

In practice, private companies have demanded guaranteed purchases of the output of these plants in return for making the investments, and so the negotiation about these guarantees has been crucial to IPPs.In Poland, the new power plant at Turow has been given a 20-year guarantee that the state electricity company PSE will buy its output; the new plant at Csepel in Hungary, owned by Powergen, has a similar 20-year guarantee.

The proposed energy privatisation in Estonia involving NRG depends on similar questions, and shows how privatisation can seriously distort traditional notions of Latvia also is evaluating long-term electricity needs, reviewing consumptionand generation of power and district heating sold to industry andresidential sectors.The proposed law, which was filed by the Ministry of Economics (MOE), laysdown a code of conduct and mandatory controls under which all powercompanies will be required to operate. There will also be new and tougherlicensing rules for power firms.The ministry has just announced new terms for the privatization ofLatvenergo, the government-owned power company. Central to the revisedformat is a plan to target 10% of the company's shares at domestic Latvianinstitutions. Under the privatization scheme, Latvenergo will be reorganizedby October into separate companies answering to a parent holding company.The MOE requires the state to retain a minimum 54.8% stake in Latvenergo,while a strategic foreign investor will be offered 35%, and native Latvianinvestors 10%.Latvenergo's power production assets, including its thermal power stations,will be reformed into limited companies. Fifty-one percent of the shareswill be offered to one strategic foreign partner, 10% to Riga City and afurther 25% to native institutional investors. The remainder will be offeredto power company workers and management.The state intends to retain a 65.9% interest in Latvenergo's powerdistribution business, which also will become a limited company. Twostrategic foreign partners will be offered 13% each, while remaining shareswill be offered to native institutional investors."15 "23 Apr 1998 LITHUANIA-LITHUANIAN ENERGY Q1 PROFIT SOARS: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:19) VILNIUS, April 23 (Reuters) - Q1'98 vs Q1'97 (amounts in million litas) Net profit 61.667 vs 6.886. Sales and services 486.536 vs 842.410 Gross profit 96.575 vs 81.266 Operating profit 78.436 vs 49.858 Profit from ordinary activities 65.470 vs 12.349 Pre-tax profit 61.667 vs 15.959 Note -- State-owned utility Lithuanian Energy saidthe Q1 1997 figures include the results of its heat producingarm split from the firm in July last year. It posted 79 millionlitas loss on 2.05 billion turnover in 1997.The company said it reduced its non-distributed loss,stemming from 1994, to 156.448 million litas at the end of thefirst quarter of 1998 from 216.819 million litas at the end of1997."16 “03 Jun 1998 ROMANIA TO RESTRUCTURE POWER MONOPOLY: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:42)

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competition: "the new business plan guaranteed NRG a market share of 75 percent for the first eight years and 50 percent for the seven years thereafter. 'The rest of the market would be a free market, everybody could come and build their own power plant,' he said. 'This would create the conditions for a free electrical energy market in Estonia,' he added." (Reuters 12 May 1998).

If however the political consensus which reached an agreement breaks down - for example after a change of government - the terms of a contract may be renegotiated in a way that is less favourable to the company. This has happened in both India (over Enron's plant at Dabhol) and is currently happening in Pakistan with national Power's Hubco plant. 39

By ADRIAN DASCALU BUCHAREST Romania's Renel RA electricity authority has submitted the government a restructuring plan that marks a breakthrough in the reform of monolithic state-run monopolies, a Renel official said on Wednesday.'The restructuring plan aims to dissolve the monopoly and privileges of Renel as the sole electricity producer,' Renel director Bogdan Popescu Vifor said.Under the plan, Renel would be split into different companies overseeing generation, distribution and transmission, he told Reuters in an interview.'The government had no major objections to our plan. So, restructuring of Renel could start even tomorrow,' Vifor said.Restructuring of 'regies autonome' - state companies holding monopolies in key sectors - is the focal point in the government's reform programme.'In the initial stage the Renel's big monopoly will be split into smaller 'monopolies',' Vifor said, adding that the process might take up to two years to complete, he said.Under the project, a newly-created National Electricity Company (CNE), in charge of power generation, transport and dispatching, would include the thermal power stations, hydro-powered stations and an electricity distribution company.CNE's three branches would operate on a commercial basis, Vifor said, adding that a regulatory body would fine-tune electricity tariffs to adjust the balance between production costs for thermal-and hydro-generated electricity.The transmission system will remain under state control.'This structure will be a temporary one. When the restructuring process will gain more momentum, those entities will be split in smaller commercial companies and eventually privatised,' Vifor said.Vifor said restructuring of Renel, overstaffed to crippling levels and hobbled by payment arrears, would help the creation of a 'real' energy market in the Balkan country.Restructuring of Renel, which employs 93,000 people, would have big implications for other energy-intensive sectors.Under the plan, a separate entity would include the nuclear reactor at Cernavoda, built with Canadian Candu technology, and the Pitesti nuclear fuel producer.The oversized Romag RA heavy water producer would remain operational, Vifor said, as the government had guaranteed to purchase its output, estimated at 90 tonnes a year, to build strategic reserves for a planned second reactor at Cernavoda, where construction work was halted due to lack of funds.Vifor said Renel and government experts were preparing new legislation, including a new bill on energy, to ensure the proper legal framework and smooth restructuring.'We don't claim that we try to re-invent the wheel. We try to find a system which could work.' “ 04 jun 98

25 May 1998 ROMANIA TO SPEED RESTRUCTURING OF BIG STATE FIRMS: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:34)

BUCHAREST Romania's Industry Minister Radu Berceanu said on Monday his ministry had reshaped the boards of three large state companies to pave the way for faster restructuring.'(Electricity utility) Renel's president should present a restructuring programme next Monday to be discussed at a government meeting next week,' Berceanu told a news conference after announcing changes in Renel's 11-member board.

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2. Companies

A. Multinationals: diversification and joint venturesPrivatisation has introduced a number of multinationals to the energy systems of CEE (despite local managers winning two recent tenders for power plants in Hungary). The following section sets out brief profiles on these multinationals.

One of the characteristics of some of the companies, especially the French and German groups, is that they are active in a number of sectors, such as telecomms, water, and waste management. This is true of their operations within the EU, and also of their expansion into CEE.

Renel president and general manager Aureliu Leca retained his position, as did the head of SNP Petrom national oil company Ioan Popa. Florin Sebastian Georgescu was appointed the new president of Romgaz gas utility's seven-member board.'We selected new board members using their professional performance as a criterion,' said Berceanu. 'I think in this way the 'regies autonomes' could head towards efficiency and I'm now waiting for concrete proposals on their restructuring.' Restructuring of 'regies autonome' - state companies holding monopolistic positions in key sectors - is the focal point in the government's reform programme.Berceanu said Romgaz and SNP Petrom had two weeks to submit their restructuring plans. 'I'll go before parliament myself to ask for faster debates on these bills,' he said.Restructuring is a key issue under fresh loan talks to start in June with the International Monetary Fund after a Dollars 410 million credit expires this month with only two of five tranches disbursed.Romanian officials have said Renel is plagued with high wage bills from an oversized workforce and its restructuring will have big implications for other energy-intensive sectors.Government plans call for initially splitting off parts of utilities to function as independent companies. Broader privatisation will follow later.

20 "28 May 1998 Weekly Economic Report: Albania: State to Axe Energy Subsidy for Industrial Consumers: BBC Summary of World Broadcasts (Q1:15) Source: ATA news agency, Tirana, in English 1225 gmt 20 May 98 Text of report by the Albanian news agency ATATirana, 20th May: Power price subsidy for industrial consumers is planned tobe removed, the Public Economy and Privatization Ministry said (on)Wednesday (20th May), while for family consumers the power price will not bechanged. In Albania the energy price does not correspond with its production cost, because until now the state has subsidized the price. The measure is though (as received) to be taken when many industrial consumers owe Albanian Energy Corporation (AEC) money in unpaid electricity bills. AEC losses from all Albanian consumers in unpaid power bills have mounted to) 50m dollars." 21 "12 Feb 1998 FEATURE - ALBANIAN POWER FIRM SEES FEW BRIGHT SPOTS: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:77)

By BENET KOLEKA TIRANAThe neon-lit office of Engjell Cuci, chief executive of Albania'sstate-owned electricity corporation, plunged into darkness.'You see, even we are not spared,' he told Reuters with a dry smile,reaching for the telephone to instruct an engineer to reconnect the supply.Power cuts, huge unpaid bills, theft and vandalism are all in a day's workfor Cuci, who runs the power generation and distribution firm KorporataElektroenergjitike Shqiptare (KESH).Europe's poorest country produces more electricity than it consumes andactually earns much-needed hard currency by exporting some to Greece.But its antiquated distribution system is groaning under the strain of ahuge upsurge in demand since communism was swept away in 1990 and power cutsare a daily fact of life, especially in winter.

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Multi-sectoral groupsSectors Electrici

tyGas Wast

eWater

Telecomms

Construction

EdF ■ ■Suez-Lyonnaise

■ ■ ■ ■ ■ ■

Generale des ■ ■ ■ ■ ■

KESH, earmarked for privatisation by the socialist-led coalition governmentof Prime Minister Fatos Nano, is caught in a vicious circle.Customers are clamouring for reliable service but the company cannot upgradeits grid unless they pay their bills - it is owed no less than Dollars 60million in unpaid bills for 1997 alone, an astonishing sum in such a poorcountry.'Everyone seems to think that KESH is a cow good only for milking to thepoint it might die,' Cuci said. 'But if it dies, the whole economy mightdie.'CONSUMPTION CLIMBS AFTER COMMUNISM COLLAPSESAlbanian electricity consumption virtually doubled after the end ofcommunism as the country was flooded with previously undreamt of westernconsumer goods. Last year consumption was 19 million kilowatt/hours comparedwith 10 million in 1991.'The system is at a critical point,' said Cuci, a 58-year-old electricalengineer who has spent his entire career with the company.'It's like loading a five-tonne truck with 10 tonnes. The lines are socharged that we have to shut down parts of the network to save thetransformers from meltdown.'Albania's political instability has not helped.The country was rocked by violence in 1997 after the collapse of'get-rich-quick' pyramid investment schemes. Electricity pylons were blownup in Tirana, Elbasan and Gjirokaster and iron parts stolen.Peace has been restored but the country remains awash with more than half amillion weapons looted from army barracks last year. Some youthfulgunslingers have been known to amuse themselves by taking pot-shots atoverhead power cables.Home-owners routinely tamper with electricity meters or steal power directlyfrom the lines.'Both are crimes punishable with imprisonment, but no action has beentaken,' Cuci said.Money is his most pressing problem.'If our consumers paid their bills, KESH would be able to meet all theirneeds,' Cuci said.KESH generates 1,600 Megawatts of electricity per year, about 90 percent ofwhich comes from nine hydro-electric schemes. Three of these, on the Driniriver in the north of Albania, produce 80 percent of total output.Abundant water reserves in the last two years enabled the company to export270.18 million kilowatt/hours in 1997, but Cuci fears a recent prolonged dryspell could force it to import electricity this year.EXPORTS ENSURE MODEST PROFITThe company expects to report a modest profit of 1.15 billion leks (Dollars7.7 million) for 1997, largely due to its exports, but Cuci says it will becrippled if the backlog of unpaid bills is not paid.He complains that the cost of electricity, which unlike fuel prices is stillofficially regulated, is kept artificially low at just 4.8 leks (three US

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EauxRWE ■ ■ ■ ■ ■ ■Veba ■ ■ ■ ■ Viag ■ ■ ■ ■

Another is the extent to which they operate jointly, despite their supposed competition against each other. In gas, the German multinational Ruhrgas and the Russian Gazprom are seen as competitors, yet they have emerged as joint owners of the privatised gas companies in Latvia and Estonia. In electricity, RWE and EdF are the two largest electricity companies in Europe - one German, one French; one

cents) per kilowatt/hour.This makes it cheaper for people to heat their homes by using electricityrather than burning liquid gas or wood.An added irony is that state-owned enterprises, far from setting a goodexample, are among the worst offenders when it comes to paying theirelectricity bills.State-owned corporations have paid only 30 percent of their bills whilegovernment bodies are little better at 45 percent.KESH is high on the list of major enterprises which the Nano governmentplans to start privatising this spring.The government is likely to start by offering private sector firms a fullmanagement contract, moving to full privatisation over three to five yearsbut with the state keeping a golden share.'We will try to build new hydropower schemes by granting concessions orunder a build-operate-transfer scheme,' Cuci said.The company is receiving loans totalling Dollars 120 million from the WorldBank and the European Bank for Reconstruction and Development (EBRD) torefurbish the Drini and Mati dams, which at present run on 25-year-oldChinese technology.Work is also underway to upgrade the distribution grid.However, the prospect of a life uninterrupted by power cuts still looks likea distant dream for Cuci.He recently told residents of the capital Tirana that they had to be moresparing in their use of electricity.'A transformer burned out in the eastern part of Albania and people therewere without power for 24 hours,' Cuci said.'If you do not want that to happen in Tirana, start thinking about otherways of heating.' (Dollars =150 Leks)"

22 "21 May 1998 INTERVIEW-BOSNIA POWER COMPANY TO INCREASE EXPORTS: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:60)

By DARIA SITO-SUCIC SARAJEVOBosnian power company Elektroprivreda, one of the country's threeelectricity providers, plans to increase its export of electricity thisyear, the firm's general manager said in an interview.Elektroprivreda signed two export deals with neighbouring Slovenia andCroatia earlier this year and plans to sign another five-year contract witha new client next month.'We are close to signing a new five-year export deal for the delivery ofelectricity. Negotiations are in their final stages and we plan to startdelivery in July,' Meho Obradovic told Reuters.Obradovic declined to identify the new client but said details of the dealwould be released in the coming weeks.The state-owned Elektroprivreda was the former socialist republic's only

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private, one state-owned - yet they have acted jointly to takeover a strategically placed Swiss utility.

Joint ventures between 'competing' multinationalsCountry Venture SectorSwitzerland ATEL Electricity RWE EdFHungary Budapest

WaterWater RWE Suez-

LyonnaisePortugal Turbogas Electricity RWE PowergenGermany Veag, etc Electricity RWE Veba/

PreussenEleViag/ Bayernwerk

power company and covered the whole of Bosnia-Herzegovina.But during the Bosnia's 1992-95 war, its activities were reduced to theterritory of the Moslem-Croat federation, which together with a Serbrepublic comprises post-war Bosnia.'Elektroprivreda operates at some 50 percent of its pre-war capacity, whichhad amounted to about 4,000 MW (megawatts) of power installed at the plantsthroughout the country,' Obradovic said.Although the company suffered two billion German marks (Dollars 1.1 billion)worth of damage during the war, it has managed to recover enough to meetboth electricity needs in the federation and the export of a surplus.A 9.8 million mark deal on the export of 210 gigawatt-hours of electricityto the Slovenian power company ELS was signed in January. The Sloveniancompany paid partly in cash and partly in equipment, Obradovic said.Elektroprivreda also signed a Dollars 20 million deal on export of 600gigawatt-hours of electricity to Croatia last month. Obradovic said hebelieved there was even more interest in export of Bosnian electricity toCroatia.'We are covered by neither state nor the federation budget,' Obradovic said.'We are self-sustained.'But international loans have helped the firm to get back on its feet.'We get loans from the World Bank, the European Bank for Reconstruction andDevelopment, and soft loans from some Western governments,' the companydirector said.The World Bank on Wednesday approved a new International Development Agencyloan to Elektroprivreda worth Dollars 25 million, which will be usedprimarily for reconstruction of production facilities.Another source of support for the company is equipment donated throughagreements between Bosnia and other countries.Some 65-70 percent of the electricity in the Moslem-Croat federation isgenerated in thermo-electric plants and the rest in hydro-electric plants.'This is a very unfavourable situation for us, and we plan to change it byincreasing a number of hydro-power plants on the Neretva river' in southernBosnia, said Obradovic.Bosnian environmentalists and residents in the Neretva valley oppose thebuilding of new hydro-electric plants.Obradovic said the critics had to consider the country's long-term needs forenergy that would increase with the recovery of industry.'We have to improve an existing imbalance between the thermo-and hydro-powerproduction in favour of water power. It would also create new jobs for thearmy of unemployed people in Bosnia,' he said. Elektroprivreda currentlyemploys over 6,000 workers.Apart from Elektroprivreda of Bosnia-Herzegovina (EPBH) and Elektroprivredaof Republic of Srpska (EPRS), there is also a Croat-controlledElektroprivreda of the self-styled Croat Community Herceg-Bosna (EPHB).The three companies last week signed a memorandum of understanding toimprove coordination of their activities in Bosnia, a first step towards

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ktraOtelo Telecomm

sRWE Veba

Germany Schkopau Electricity Veba/PreussenElektra

Powergen

Germany Bewag Electricity Veba/PreussenElektra

Viag/ Bayernwerk

Southern Company

forming a single power company for the whole country.Obradovic said his company would be among the last state enterprises to beprivatised.'We will not make a mistake and rush into privatisation, like some othercountries did,' he said. (Dollars = 1.77 German Marks)"

23 "02 Jun 1998 INTERVIEW-CROATIA GENERATOR'S SALE UNLIKELY IN '98: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:42) ZAGREB The privatisation of Croatia's state-owned electricity monopoly HEP(Hrvatska Elektroprivreda) is unlikely to begin this year but couldeventually lead to a foreign listing, its general manager said on Tuesday.'In order to start the process we need to do some preparations and thatwould certainly take more than six months. So privatisation this year isunrealistic,' Damir Begovic told Reuters.Croatia aims to privatise all its state utilities in coming years withcurrent laws envisaging the sale of up to 25 percent of HEP.Begovic said he would rather see HEP's shares listed in London or Frankfurtthan at home.'That would be a better solution, only one has to be prepared for theconsequences of a listing abroad. Shares trade so fast and every listingmeans that no one has full control over real ownership once shares startchanging hands,' he saidHEP posted a 57.1 million-kuna (Dollars 8.9 million) net profit in 1997, 8.8percent up on the previous year, Begovic said.'The results are in line with our expectations. Given the conditions, hugecosts generated by lower-quality technology and the need to repair all wardamage, they are still satisfactory.'He said HEP's net was not likely to grow significantly in the next two orthree years, until the company repaired all war-related damage, estimated atsome 2.2 billion marks (Dollars 1.2 billion). It has so far repaired some700 million marks worth of damage.The company's total 1997 income grew to 6.0 billion kuna from 5.7 billionthe previous year, while its operating profit increased to 366.6 millionkuna from 218.6 million.HEP, the sole Croatian company in charge of electricity production,transmission and distribution, paid no profit tax during 1996 and 1997 whileit paid large interest on its foreign borrowings.In September 1997 Standard and Poor's rated HEP BBB minus for foreigncurrency and BBB plus for local currency. At the same time HEP signed a 120million-mark foreign loan to repay most of its unfavourable short-term loansand help the reconstruction of Croatia's power grid.Last month the company signed another loan with a consortium of foreignbanks amounting to 160 million marks, which will be used to reconstruct athermal power plant and build a power line between Hungary and Croatia."17 " The main conditions for extending FESAL 2 are likely to include: denationalization of more than 50 per cent of the state-owned assets, privatization of one or two banks, and

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Russia Lenergo Electricity Veba/PreussenElektra

IVO

Latvia Latvijas Gaze Gas Veba/PreussenElektra

Ruhrgas Gazprom

Portugal Tejo Energeia Electricity Endesa National Power

EdF

Morocco Casablanca Electricity/water

Endesa EdF Suez-Lyonnaise

Thailand CoCo Electricity IVO Generale

restructuring of the National Electric Company (NEK) in preparation for privatization by the year's end. The World Bank has hired a consultant who should draft two versions based on all hitherto proposals for the NEK privatization, the bank's office in Sofia also said. According to the World Bank, this company' s denationalization will be a difficult process which would require the adoption of a relevant legal framework and dividing NEK into smaller, easy-to-sell entities. The bank believes that if the government wants to sell NEK for a higher price it should increase electricity prices." 07 May 1998 BBC SWB/BTA News Agency18 "30 Apr 1998 BULGARIA TO OPEN UP ITS ENERGY MARKET BY 2010: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:39) By LILIANA SEMERJIEVA SOFIABulgaria plans to liberalise its energy market by 2010 through restructuringand active privatisation, Energy Committee chairman Ivan Shilyashki said onThursday.He told Reuters the first step was to stabilise the energy sectorfinancially by 2001 so it could guarantee the Balkan state's power needs.'This will enable us in 2001 to step up the liberalisation of the energymarket and link it to European energy markets,' Shilyashki said after aninternational conference on Bulgaria's energy market in the capital Sofia.Bulgaria should increase sell-offs this and next year but there are no plansto sell the Kozloduy nuclear power plant and the Chaira pumped storageplant.After 2000 a major part of the state-owned National Electricity Company(NEC) which produces 90 percent of the country's electricity will beprivatised. 'The state will keep only the transit network,' Shilyashki said.Bulgaria plans to start privatisation of the national gas company Bulgargasafter 2001 through sales of shares on a stock exchange or to strategicpartners.'This will adjust the company to a liberalised energy market and attractforeign investments,' Shilyashki said.He said Bulgaria was ready to sell 22 small hydro-power stations this yearand would sell more than 40 in the next two-three years.Firms servicing the power sector would also be privatised, he added. Thermalpower plants Maritsa East Three and the Rouse unit will be sold first.Shilyashki said foreign investors were expected to show interest in buyingpower units and in rehabilitating old power plants. New plants would bebuilt through concessions.Keith Burrell of British-based National Power PLC said his company wasbidding to build a 600-megawatt thermal power plant at Maritsa East One.'Maybe we will be one of the first major private investors in the energysector,' Burrell told the conference.But he said current electricity tariffs were not sufficient to supportprivate investment.His company will seek political risk guarantees from multilateral financingagencies, Burrell said, calling it 'our basic precondition' forparticipation in major projects.Shilyashki said Bulgaria's energy strategy envisaged a pricing policy aimedat covering both production costs and investment."

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des Eaux/ Sithe

Brazil Light Electricity EdF AESHungary Edasz Electricity EdF Viag/

BayernwerkUK Humber power Electricity IVO GPU

B. EU-based electricity multinationals

RWE Germany10 "13 Mar 1998 PARLIAMENT VOTES TO HALT PRIVATIZATION OF ENERGY SUPPLIER: BBC MONITORING SERVICE - CIS Reuter Textline (Q2:16)

Source: Latvian Radio, Riga, in Latvian 1700 gmt 11 Mar 98Text of report by Latvian radio on 11th MarchThe Saeima (parliament) today adopted a resolution to halt the privatizationof Latvenergo (state energy supplier) for the time being, until the findingsof the parliamentary investigating commission are compiled in the case ofthe (missing) Latvenergo millions.The resolution also obliged the government to provide the Saeima with ajustification for power supply tariffs by 1st June.The draft resolution to halt the privatization had been submitted by theparliamentary investigating commission."11 "11 Dec 1997 PRIVATIZATION AGENCY DECIDES TO SACK THE ENTIRE BOARD OF ENERGY SUPPLIER: BBC MONITORING SERVICE - CIS Reuter Textline (Q2:22)

Source: Latvian Radio, Riga, in Latvian 1600 gmt 9 Dec 97Text of report by Latvian radio on 9th DecemberThe council of the Privatization Agency today decided to dismiss from theirposts all members of the board of Latvenergo (Latvian energy supplier). Theagency's council took this decision in order to carry out a request from theminister of economics and the agency's authorized representative of thestate and the chairman of the board, Atis Sausnitis.Sausnitis requested the dismissal of the board of Latvenergo in connectionwith the passive action on the part of the members of the board in the caseof the deal between Latvenergo, Banka Baltija (which has collapsed) and aLiechtenstein company.The president of Latvenergo, Edgars Birkans, and the vice president, KarlisPurnis, have already been suspended until the circumstances of the abovedeal are clarified. In addition, Birkans has been charged with abuse ofpower"12 "28 Apr 1998 LATVIAN OFFICIAL TELLS IMF OF SELLOFF DELAYS: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:34) RIGALatvia's privatisation agency on Tuesday complained to a mission from the nternational Monetary Fund (IMF) that the pace of privatisation was beingslowed by pre-election political arguments.The agency said its director general, Janis Naglis, met the IMF team anddiscussed the sale of key state firms such as energy firm Latvenergo,Latvian Shipping and Latvian Gas.Selling stakes in these companies was part of the government's economicagreement with the IMF, signed on March 9.'Naglis expressed regret that the approach of parliamentary elections hasdelayed the privatisation of various companies, politicising them too much,'the agency said in a statement.Latvia's elections are due in October and arguments over the privatisation

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Group Home country

Company Country Type %

RWE Energie Germany EG/ET/ED

100

Gasag Germany GD 12Veag Germany ED 26

ATEL Switzerland ED 20

of several companies, particularly Latvenergo, have more or less put theirprivatisation on hold.Naglis told the IMF mission the agency had been working on sellingLatvenergo but that if the government decided to suspend its selloff theagency would cease all preparatory work on it.He also complained to the IMF about a decision by the privatisation agency'ssupervisory board, made up of representatives of political parties, to keepthe state's stake in Latvian Gas above 50 percent.Naglis noted that the government in its agreement with the IMF had promisedto end the privatisation process by mid-1998, something which most analystssay is unlikely to happen due to delays in the sale of these key companies."13 "27 Mar 1998 PM KRASTS SAYS LATVENERGO DECISION NEEDED SOON: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:27)

RIGAPrime Minister Guntars Krasts said on Friday urged a final decision to bemade on the selloff of energy firm Latvenergo to have the actual processunderway in 1999.'A decision on how to proceed with Latvenergo must be taken as soon aspossible,' Krasts told Latvian radio.'If this is done now, the actual privatisation and investmenty could takeplace only next year,' he added.The privatisation agency still has to make up its mind on the way toprivatise the state electricity company, which then has to be approved bythe cabinet.'I support the model proposed by the privatisation agency where separateLatvenergo companies or parts of companies would be sold,' he added.'I fully support the idea of the hydroelectric power stations on the Daugavariver as well as the transmission grid remaining in the state hands,' hesaid.He said that privatisation was almost 98 percent complete and that to sellLatvenergo was difficult as it was such a big company.He said the privatisation was taking place on the backround of thedevelopment of a regional electricity policy.'A common (Baltic) electricity market is not a dream of too distant in thefuture given the current level of development,' Krasts said."19 "01 Dec 1997 BULGARIA AWAITS LAW FOR THERMAL INVESTMENT AND PRIVATISATION: East European Energy Report FT Bus Rep: Energy (Q3:81)

The restructuring of Bulgaria's National Electric Company (NEC) is on holduntil a new energy law is passed by parliament, at the earliest in Februarynext year. Until then no legal basis for attracting badly needed investmentin power generation exists.In an interview with EEE, Ivan Hinovski, executive director of NECresponsible for nuclear energy, said: "Everybody is waiting for the lawwhich will be the legislative base for future investors. The final purpose

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Turbogas Portugal EG 50

Elmu Hungary ED 71(+EVS) Emasz Hungary ED 51

Matra Hungary EG 51STE Czech

republicED 14.2

Prazska plynarenska

Czech republic

GD 11.7

Skoenergo Czech republic

EG 21

is the partial privatisation of the company. It is difficult to say what thepercentage will be though. It could be 10, 15 or 25 percent, depending onthe interest" he said. The state privatisation agency has already announcedthat the sale of NEC will be managed by a commercial consultant chosen viaan international tender at the end of this year or the beginning of next.NEC itself has already approached potential foreign investors, such asSiemens, offering them the opportunity to invest in the building of newpower stations. One such project is to build a new circulation typefluidised bed combustion (C-FBC) station on the site currently used by theMaritsa Iztok 1 thermal complex.The 200 MW unit, built in 1958, reaches the end of its operational life in2000. Like most of the thermal stations in the country it burns low qualitylignite. A tender for the project will be launched in two stages, eachcomprising two units with capacity of 230-250 MW each The entireconstruction is expected to cost #500-600m. Hinovski said "internationalcompanies will be invited to invest in the project and to sell theelectricity afterwards in order to recoup their investment".The other two thermal stations in the Maritsa Iztok complex, with capacitiesof 800 MW and 1,450 MW, will be rehabilitated. Financing for these projectswill also have to come from abroad. These tenders cannot be launched untilthe new law is passed explained Hinovski, because at the moment there is nolegal basis for attracting investment on these terms. He added that nodecision has yet been made on the Varna thermal plant. "We have to decide tomodernise it and operate it in the framework of NEC or to privatise it. Thiswill also be decided by the law".Time running out for KozloduiAllowing private operators into power generation and getting therestructuring of Bulgaria's thermal power generators underway has become akey priority because time is running out for Kozlodui, the country'stroubled nuclear plant which generates around 40% of Bulgaria's power.Decommissioning the four oldest Kozlodui units will cost up to #800m andunder an agreement with the Nuclear Safety Account run by the EBRD, the workshould have started this year. However, no steps have yet been taken for thereplacement of the 1,760 MW they represent and so this deadline is likely tobe extended.Units one and two have a design life until 2006 while three and fourofficially expire in 2010. However, studies are just beginning now todetermine the exact operational life of the units. Until these are completedno new deadline exists for when the units must be taken out of service.Hinovski explained that the NEC was prepared to shut down blocks as soon asthey were declared unsafe, but believed that modernisation work alreadycompleted, and further work planned, meant that the old blocks couldcontinue for their full life without problems.The only rehabilitation project which is currently underway in the sector isfor the modernisation of Units 5 and 6 at Kozlodui, which are 1,000 MW thirdgeneration Russian pressurised water reactors (VVER-1000). Siemens is

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Mosenergo Russia ED 0.5TE Plomin Croatia EG 50

RWE Energy division: 1996/97 sales DM 21.259 billion, employees 33,154

RWE is an energy, mining, chemicals, waste management and engineering multinational. It was controlled by German local authorities, until it changed its voting structure in 1998 so that the municipalities now have 30% of the shares and votes. Its energy division is the largest electricity company in Germany. It has extended its concessions with major local authorities to protect sales from competition. It is also involved in gas distribution. leading the Ecu250m project with Framatome and Russian organisations headedby Atomenergoexport. Loan financing will come from consortium memberscountries with the major contribution from Russia. However, Bulgaria willprovide state guarantees for the work and funding is also expected fromEuropean banks and Euratom. Siemens will also set up a company for therehabilitation of the Bobovdol thermal plant."24 "08 May 1998 SERBIAN POWER MONOPOLY INVITES FOREIGN INVESTORS: REUTER NEWSSERVICE - EASTERN EUROPE Reuter Textline (Q2:57) By GORDANA FILIPOVIC BELGRADESerbia's power monopoly Elektroprivreda Srbije (EPS) on Friday invitedforeign power companies to tender to finance the completion of along-delayed Dollars 755 million power plant.'Elektroprivreda Srbije invites foreign partners to finance completion ofthe thermal power plant Kolubara B,' a company spokesman told Reuters.Construction of the plant, due to be completed in 2001, has been delayed byfunding difficulties after a United Nations oil and trade embargo wasimposed on Yugoslavia for its role in the 1992-1995 war in neighbouringBosnia.So far, Dollars 300 million has been invested in the project, comprisingDollars 200 million from EPS's own funds and Dollars 100 million throughinternational credits.Invitations to secure around Dollars 455 million needed to complete theproject were sent to British National Power, German RWE, ENEL of Italy,Greek PPC, Czech Skoda and a Hungarian power company.'These power companies can finance the power plant construction either fromtheir own funds or raise money elsewhere. We need partners with capital,'said the spokesman.Czech engineering entity Skoda as last April signed a Dollars 62 milliondeal with EPS for equipment for the first stage of two 350 megawatt units,including supply of steel housing, generators and transformers.EPS insisted it wanted no more credits because it was already heavilyindebted.'Some companies offer to sell us equipment on credit. But we do not want anymore credits, we are already heavily indebted. We need capital to secureinvestments,' the spokesman said.EPS has accumulated around Dollars 848 million in debt over the last fewyears.Construction work on Kolubara B was halted in 1992 due to the UN embargo.Kolubara B was granted a Dollars 300 million World Bank loan in 1991, butthe money was never received because of the sanctions.'Elektroprivreda Srbije invites foreign partners, which have shown interestin investing in the power plant Kolubara B, to collect tender documentationand submit their offers,' EPS said in a statement.The government will deliver tender documentation between May 25 and May 30and offers should be submitted by June 30,. It did not specify the deadlinefor selecting the best bids.

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It is active internationally in Europe. It owns 20% of a major Swiss electricity exporter, ATEL (in a joint venture with EDF). It owns 50% of Turbogas in Portugal (jointly with Powergen).

It owns majority shares in two electricity distributors, one generator, and one gas distributor, in Hungary; shares in an electricity distributor, a gas distributor and a cogeneration plant in the Czech republic; shares in Mosenergo, the Moscow electrical utility; and half of a new power station in Croatia.

In Hungary in 1996, RWE tried to give notice of withdrawing from the national agreement on pay and conditions. The Hungarian unions and the German unions campaigned against this, and RWE backed down.

An industry source said the government could accept more than one successfulbidder.'The thermal power plant Kolubara B, of 700 megawatt installed capacity, isa priority to meet growing electricity consumption in Serbia at thebeginning of the next century,' EPS said.Electricity consumption in Serbia and Montenegro, which now make upYugoslavia, is seen rising by 2.9 percent in 1998 to 38,628 GWh, but plannedproduction remained at its 1997 level of 37,304 GWh.Cooperation with foreign companies was seen paving the way for theprivatisation of EPS, the monopoly said.'With this invitation to foreign partners, whose capital will help completethe power plant, Elektroprivreda Srbije also expresses preparedness tocontinue its restructuring and embark on ownership transformation, first ofall through capital increase,' the company said.The invitation came on the eve of more international sanctions againstSerbia for its failure to start talks with ethnic Albanian separatists inits troubled province of Kosovo. Government financial assets were frozen last week and the US-led international Contact Group has threatened to ban foreign investments too if no progress is made by Saturday."25 "14 Jan 1998 HANSA INVESTMENTS DETAILS LENENERGO SALE: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:18)

TALLINNHansa Investments said on Wednesday that 90.272 percent of 15 percent of theRussian Lenenergo power utility shares were sold by auction on December 19.Hansa Investments, financial advisor for the sale, said in a statement thatthe shares were sold at a price of 5,000 roubles per share (beforedenomination).Five corporate entities and 698 private individuals were successful biddersfor the shares.A further 14,818,628 common shares (1.65 percent of share capital) will besold by the Property Fund of St Petersburg during the first half of 1998."26 "02 Dec 1997 IVO blickar mot naromr den RUSSIA: IVO TO BOOST STAKE IN LENENERGO?: Hufvudstadsbladet Globalbase (Q1:19)

Imatran Voima (IVO) would like to boost its holding in Lenenergo, the powerutility in St. Petersburg, Russia. The company also supplies electricity toFinland. IVO has announced that it would like to boost its stake inLenenergo from the current 1% in order to cooperate more closely withLenenergo. IVO would also like to invest in the Estonian state powercompany. Negotiations have already taken place, but they were called off asthe US company NRG Energy wanted to join in. The situation in Estonia seemspromising, however, vice-president Anders Palmgren says."

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RWE also has a waste management division that operates internationally as well as in Germany. It has some water supply business, and is a partner (with Suez-Lyonnaise) in Budapest Water, Hungary. It is involved in telecoms with shares in Otelo and E-plus in Germany (with Veba). It is planning to expand its telecoms activities into CEE also. 40

Veba/Preussenelektra Germany

PreussenElektra Germany EG/ET/ED

100

Veag Germany ED 26.3Bewag Germany ED 23.0HEW Germany ED 15.4

Sydkraft Sweden EG 17.6BKW FMB Energie Switzerland ED 10.0Latvijas Gaze Latvia GD 6.5AO Lenenergo Russia ED 5

PreussenElektra division: 1997 Sales DM 16.1billion; employees 22,838

Veba is a multinational energy, chemicals, oil, and services group.

PreussenElektra, the energy division of Veba, is the second largest electricity provider in Germany. The 1997 results included output from the Schkopau power complex (jointly owned with Powergen, UK) for the first time. It is being restructured into generation, distribution, and transmission segments. Within Germany, PreussenElektra also has shares in Veag (in partnership with RWE and Viag/Bayernwerk) and Bewag (in partnership with Viag/Bayernwerk and Southern Company, USA) in the Berlin area, and HEW in Hamburg.

PreussenElektra is also active internationally. It owns 17.6% of Sydkraft, Sweden ; 10% of BKW FMB Energie AG, Switzerland; 6.5% of Latvijas Gaze, Latvia (in partnership with Ruhrgas) ; and 7.64% of Lenergo, Russia (in partnership with IVO of Finland).

Veba also owns 52% of Gelsenwasser, the largest private water company in Germany. It is joint owner (with RWE) of the telecoms company Otelo, which also owns 60% of the German mobile network E-Plus. Veba also owns 17.5% of Bouygues Telecom (in partnership with Bouygues and Telecom Italia), which has a telecoms license in France.

Viag/Bayernwerk Germany

Bayernwerk Germany EG/ET/ED 100Isar-Amperwerke Germany ET 80.0Veag Germany ED 22.5Bewag Germany ED 26.0

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Watt AG Switzerland EG/ED 25Dedasz Hungary ED 47Edasz Hungary ED 27.5Titasz* Hungary ED 49

(with EVN) Kogaz Hungary GD 25Teplarna Kyjov* Czech

republicEG 38

*via Isar-Amperwerke

Bayernwerk division: 1997 sales DM 10.3billion, employees 16,195

Viag is a multinational energy, chemicals, packaging and logistics group.

Bayernwerk is the energy division of Viag. It has restructured into separate generation, transmission and distribution sections, and is reducing costs in response to greater competition.

In Germany, Bayernwerk gained control in 1997 of 80% of Isar-Amperwerke. It also has shares in Veag (in partnership with RWE and Veba/ PreussenElektra) and Bewag (in partnership with Veba/ PreussenElektra and Southern Company, USA) in the Berlin area.

Bayernwerk is active internationally and owns 25% of Watt AG, Switzerland; has shares in three Hungarian electricity distributors and (in partnership with the Austrian EVN) a Hungarian regional gas company; and shares in a Czech heating and gas distributor.

Bayernwerk also has waste management operations in Germany. Viag is involved in telecoms: its subsidiary Viag Interkom holds a mobile phone network in Germany; is part of a grouping with BT and telenor to compete for telephone services in Germany; is part of Connect Austria consortium which has a mobile telephone service in Austria; and in 1998 won a mobile telephone licence in Switzerland.

IVO Finland

AO Lenergo Russia Energy 1IVO Energeia Estonia Energy 100Europeat Ireland Energy 100Baltic Power Latvija Energy 50Baltic Power Lithuania Energy 50Budapest Magyar EG 42.7IVO Polska Polska EnergyIVO-Vatt Polska Energy 50IVO Suomi Electricity 100Lansivoima Suomi EnergyBirka Energi Sverige EnergyGullspang Kraft Sverige Electricity 92.9IVO Energi Sverige Energy 100CoCo Thailand Energy 13Humber Power UK Energy 22.5

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IVO is the Finnish state-owned electricity company. It is very active internationally. It is the second largest energy company in the Nordic energy market, and also operates in the UK, Hungary, Ireland, Malaysia and Thailand. It is seeking to expand into the Baltic states, Poland and Russia.

In 1998 IVO is being combined with the Finnish state-owned oil and gas company, Neste. The combined company, IVO-Neste, will be nearly 100% state-owned. The Finnish government intend to sell shares to the private sector in the near future., but says that the state shareholding will always remain at 51% or more.

IVO sees the liberalisation of energy markets in Europe and elsewhere as an opportunity to expand. It has done so by takeovers of local companies, including distributors, and by setting up new IPPs. It also sees CHP as an area in which can expand internationally.

Its main market is still Finland, representing more than half of its business; followed by the other Nordic countries, representing over one-third. Turnover grew 15% in 1997.

In Finland, IVO handed over its responsibilities for the transmission grid to a new grid company in 1997. IVO owns 25% of the new company.

It has taken over a number of smaller electricity companies, the largest of which was Lansivoima in 1997. IVO has formed the 'IVO Partnerit', an association which links producers and distributors in 'sharing of local expertise with nationwide marketing and the provision of common services'. It 'is intended to improve the competitive position of IVO and the partners in the Nordic electricity market' (IVO Annual report 1997).

One municipality in Finland has accused IVO of charging excessive prices for heating and electricity contracts.

In Sweden, it has taken over Gullspang Kraft, and in May 1998 it agreed to merge this with Stockholm Energi, to form the third largest generator in Sweden. It had already signed a marketing agreement with Stockholm Energi.In the UK, IVO is the lead shareholder in Humber power, a very large gas-fired plant.In Ireland, IVO has won the tender to build a peat-fired plantIn Hungary, IVO, in partnership with Japanese company Tomen, owns 80% of Budapest Eromu, a power generating company.In Thailand, IVO has shares in three power companies, including CoCo.

EDF France

Bulgaria EdF (Bulgaria) EnergyFinland Kainuun Shk Energy 25.7France EdF Energy 100France EdF (Indonesia) Energy 100France EdF International Energy 100France SOPROLIF EnergyFrance TIRU Energy 51Hungary Demasz Electricity 48Hungary Edasz Electricity 24

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Italy ISE Energy 40Poland Krakow Leg Energy 55Portugal Tejo Energia Energy 10Russia RosFranceEnergo Energy 50Slovakia EdF-Slovelec Energy 50Spain Elcogas Energy 29.13Sweden Graninge Electricity 51Switzerlan ATEL Electricity 20Ukraine EdF (Ukraine) Energy

Electricite de France is the largest electricity company in Europe. It has a clear policy of international expansion, and is doing so successfully in all continents.

In CEE, it has bought shares in two Hungarian distributors, and in the LEG power plant in Krakow. It is also involved in major nuclear projects, such as the Mochovce reactor in Slovakia.

EdF has bought shares in a Swedish energy company, in order to have a presence in the Nordic marketIt has bought shares in key electricity utilities in Switzerland and Austria, and plans to develop cross-Europe links with these and its companies in Hungary.

Generale des Eaux/CGC (Vivendi) France

Belgium Electrafina Energy 20Bulgaria CGC (Sofia) Heating 51Czech CGC Ekotherm Heating 33Czech MST Energy 53Czech TEK Energy 53France CGC Energy 100France Esys-Montenay Energy 100France Generale de Heating 42France TIRU Energy 24Germany CGC Energie EnergyHungary Prometheus Heating 68Italy CGC (Italy) EnergyItaly Finergia SpA Energy 83Poland Generale des Heating 100Romania Montenay Cluj heating 100Slovakia CGC Termotech HeatingUK AHS Emstar Energy 100UK Associated Energy Energy 100UK CGC (UK) EnergyUK Energy & Energy

Generale des Eaux (now called 'Vivendi') is a very large and internationally active utility group. It has bought shares in central heat and power companies in the Czech republic, and is set to develop heating companies in Bulgaria, assisted by a loan from the EBRD.

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Suez-Lyonnaise/ TractebelFrance

Belgium Belgatom Energy 100Belgium Distrigas Energy 50Belgium Electrabel Energy 44.8Belgium Newgaz Energy 50Belgium Powerfin Energy 62.7Belgium Synatom Energy 100France Elyo EnergyFrance TIRU Energy 25France Ufiner Energy 55Germany Stadtwerke Energy 12.5Hungary Algynvest Energy 100Hungary Dunamenti Energy 48.8Italy Rosen Energy 99Portugal Generg Electricity 11.7Spain Iberdrola (Vizcaya) Energy 12.5Spain Iberdrola-Tractebel EnergyUK Interconnector Gas 5UK Nigen Energy 50UK Powerfin (UK) Energy 100

Tractebel, which is a very internationally dynamic energy company, is now part of the Suez-Lyonnaise group. Tractebel itself dominates the Belgian energy system through its controlling shares in the dominant generator Electrabel and the gas transmission company Distrigas. It is also active in North America, Latin America, and Asia. In the EU, it is involved in major IPP projects in Italy and the UK, and it has 1 25% holding in Stadtwerke Bremen in Germany. It has bought the power company Dunamenti in Hungary.

The Suez-Lyonnaise group is also active in many other sectors, including water, where Lyonnaise des Eaux has concessions in Hungary and the Czech republic, and waste management, where Sita and Watco both have subsidiaries in CEE countries. Suez-Lyonnaise also has a large construction division, which is active in CEE, and a telecomms and media division.

Vattenfall Sweden

Czech Vychodoceske Electricity 25Finland Etela-Pohjanmaan Energy 10.9Finland Jyllinkosken Sahko Energy 35Finland Lapuan Sahko Energy 95Germany Vasa Energy Electricity 50Latvia Baltic Power (Latvia) Energy 50Lithuania Baltic Power Energy 50Norway Hafslund Electricity 20Poland IVO-Vatt (Patnow) Energy 50Sweden Nouukoping Energi Electricity 100

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Sweden Vattenfall Electricity 100Sweden Vattenfall Naturgas Gas 51

Vattenfall, which is owned by the Swedish state, is the largest generator in the Nordic countries and is playing an active, expanding and competitive role in the unified electricity market in Sweden, Norway and Finland.

It has one shareholding in the Czech republic, but has expressed keen interest in any potential privatisations in countries around the Baltic - Poland, Estonia, Lithuania, Latvia.

National Power UK

Elektarny Opatovice

Czech republic EG 73

VCE Czech republic ED 7Prazska Teplarenska

Czech republic EG

Tejo Energeia Portugal EG 45Elcogas Portugal EG 4

National Power is one of the two private generating companies in the UK. It is active internationally, but this activity has been mainly outside Europe - in Australia, Pakistan, and north America. In 1998 it started buying shares a group of Czech electrical utilities.

Powergen UK

Czech republic Energetika Energy 17Germany Mibrag Coal 33Germany Schkopau Energy 40Hungary Csepel Electricity 95Portugal Turbogas Energy 59UK East Midlands Electricity 100UK Kinetika Gas 50UK Powergen Energy

1997/98: sales £2.932 billion; employees 3,453

Powergen is one of the two private companies created by the privatisation of the UK electricity industry. In the UK, it has bought distribution company East midlands Electricity, and has diversified into selling supplies of gas.

It has interests in power stations based on lignite mines in Germany at Schkopau (with Veba/PreussenElektra) and MIBRAG; in the Turbogas plant in Portugal (in partnership with RWE); and owns the Csepel generation complex in Hungary.

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Powergen also has investments in electricity generating companies in Australia, India and Indonesia.

Endesa Spain

Has an agreement with RWE by which Endesa holds 1% of RWE shares.

Endesa has shares in Tejo Energeiea, in Portugal (together with EdF and National Power), and in Soprolif in France (with EdF). It is also involved in a joint water and electricity venture in Casablanca, Morocco (together with EdF and Suez-Lyonnaise) and a number of energy companies in Latin America, in some cases with EdF (eg Edenor in Argentina).

C. USA-based electricity multinationals

USA energy companies are mainly present in western Europe in the UK, where they now own most of the electricity distribution companies. there involvement in CEE is mainly with independent generating companies - they avoided most of the Hungarian privatisations because they were not satisfied with the guarantees offered on rates of return.

AES USATiszai Eromu Hungary EG 81

AES is active internationally. It has a number of operations in Latin America, including Argentina and Brazil, and in Bangladesh. It recently sold its 20% interest in an electricity company in Australia, however.

Calenergy USA

Northern Electric UK ED 100Power Bridge Lithuania ET

1997: Sales $7.5billion; employees 4,200

CalEnergy is a global energy company that manages and owns interests in over 5,000 MW of power generation facilities in operation, construction and development worldwide. Northern Electric distributes electricity and gas to 1.8 million customers in the United Kingdom. CalEnergy operates in the US, UK, the Philippines, Indonesia, Poland and Australia.

Enron USA

Enron-ENEL Italy EG 50

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Enron-UES Russia ET 50Enron IPP Croatia EG 100Nova Saryzna Poland EG

Enron is involved in western Europe in a joint venture with ENEL which is meant to provide ENEL with a route for international growth. In CEE, it is involved in IPPs in Croatia and Poland, and has set up a joint venture to export Russian electricity to Finland. Outside Europe, it has been involved in projects in India and Indonesia.

Enron has been criticised in the USA and elsewhere for political ruthlessness and insensitivity, and ruthlessness in laying off workers. A report in 1997 set out some of these criticisms:

"Enron is a consummate political player ... Enron plays dirty ... Money hungry, not consumer focused ... Insensitive to consumers." There were allegations that the company had "bribed" community groups with grants; that it used political contributions and lobbying contracts with former government officials to win its way; that it had undue influence over regulators…..……… Enron's ambition belies the folksy image it is cultivating with ads touting the savings it brought to customers in Peterborough, N.H. Enron president Jeffrey Skilling sent shivers through employees at PGE when he was quoted at an industry conference as saying electric companies must "cut costs ruthlessly by 50 or 60 percent." "Get rid of people," Skilling was quoted as advising. "They gum up the works." Insisting that no layoffs are planned in Portland, Enron officials said Skilling's remarks were aimed at companies that have not faced up to the reality of competition.…….Last week, Enron's oil and gas subsidiary added to its board of directors Frank G. Wisner, who had reportedly helped Enron win a $2.8 billion contract for a power generating station as U.S. ambassador to India.The New York Times reported in 1995 that Wisner "constantly cajoled" Indian officials and that the company also was aided by the Central Intelligence Agency, which assessed the strategies of the competing contractors. Lay denied Enron received any assistance from the CIA: "To my knowledge, I don't think we've ever received any information from the CIA. When we go into these countries and bid on these projects, we rely solely on our own intelligence." In July, Amnesty International issued a report accusing Indian police of beating and arbitrarily arresting opponents of the Enron project. The group accused police of "collusion" with Enron. Enron officials acknowledge reimbursing the government for extra police at the site -- as it says it is required to do -- but denied any role in the alleged mistreatment. They said police were always under police control and not under the direction of Enron.The project, the biggest international investment since India moved to open its economy in 1991, has become the object of protests by thousands of local residents who say the power-plant will take their homes and destroy their fishing grounds and coconut groves.The opposition party won a state election in 1995 after a campaign in which it accused Enron of using bribery to win the contract. Although the accusers later retracted their bribery allegations, Enron was forced to renegotiate the deal at more favorable terms.In Indonesia, Enron won a power plant contract through a partnership that includes the son of the country's president. "There are very few large companies in Indonesia that do not have involvement with one or more members of the president's family," Lay said.

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He insisted, however, that Enron abides by the U.S. Foreign Corrupt Practices Act, which bars companies from paying bribes abroad. "We have even pulled out of countries where we concluded you probably couldn't do business without bribing someone," he said." (Knight-Ridder Tribune Business News 02 Nov 1997)

NRG USA

ECK Czech republic EGNRG Estonia Estonia EG 50Mibrag Germany EG 33

NRG is involved in the largest IPP project in Czech republic, ECK, and in the MIBRAG plant in Germany, with Powergen. It is also negotiating with Estonia over a potential privatisation of the major power plants in the country, with guaranteed market share for some years. This is not yet concluded.

Texas Utilities/Eastern USA

Eastern Electricity UK ED/EG 100

Lunds Energi Sweden EDSavon Voima Finland EDEastern (Poland) Poland EGSME Czech republic ED 25Teplarny Brno Czech republic HD 52.7

Texas Utilities is only present in Europe because of its recent takeover of the Eastern Group, a UK privatised electricity company. Eastern Electricity is its core distribution company in the UK, and it has also expanded into generation in the UK. Unlike most other UK companies, Eastern has also diversified into Europe. It has taken over companies in Sweden and Finland to make itself an active competitor in the Nordic electricity market, and has also taken shares in Czech distribution companies.

Southern Company USA

Bewag Deutschlan Energy 25Poznan Polska EnergySWEB UK Electricity

Southern Company is another USA multinational active in Europe. It is the leading shareholder in the Berlin utility Bewag, and also owns one of the UK regional electricity companies, South West.

D. EU-based gas multinationals

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There are three EU-based multinational gas companies which have developed a presence in CEE.

Gaz de France, the French state-owned company, has done so by buying shares in Hungarian distributors

Gaz de France France

Degaz Hungary GD 50Egaz Hungary GD 50

Ruhrgas is offering an alternative source of supply to Gazprom, but has also become joint owner with Gazprom in the Estonian and Latvian gas companies. It too has bought into a Hungarian distribution company.

Ruhrgas Germany

Fogaz Hungary GD 39(with Gazprom) D Eesti Gas Estonia GD 20.5(with Preussenelektra and Gazprom)

D Latvijas gaze Latvia GD 16.25

Italgas - owned by the ENI group, which is still 41% owned by the Italian state - has also bought into gas distributors in Hungary, and in Slovenia. Italgas has also set up a series of deals to supply north African gas to the Balkans.

Italgas Italy

Tigaz Hungary GD 50Adriaplin Slovenia GD 64

(Types: GD=Gas distribution; GT=Gas transit)

E. Gazprom

Gazprom continues to dominate the developments in the gas sector. It is extremely important to Russia economically and politically - the state owns 40%, foreign ownership is capped at 9%.; and it pays 25% of all federal taxes. 41 It has formed a strategic alliance with the oil multinational Shell, which may mean that Shell buys 3% of Gazprom shares. 42

Gazprom now owns part or all of the gas transmission companies in most states adjacent to Russia - in some cases by accepting shares in lieu of debt payments - and has established joint ventures elsewhere. It has a policy of seeking to extend its connections westwards; its pipeline through Poland is a key part of this plan - it is said to be the largest foreign investment made in Poland. Gazprom is one of ten companies which owns the Interconnector pipeline linking Belgium and the UK.

It is currently negotiating with Ukraine over energy debts, and with Sweden to extend a further pipeline from Finland into Sweden, and with Greece for developing further pipelines in the Balkans. 43 44 45

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Gazprom's companiesCountry Company Percent

ownedPartner

Moldova Moldova Gas 50 StateBelarus Beltransgas 100 -Estonia Eesti Gas 30.6 RuhrgasLatvia Latvijas gaze 16.25 RuhrgasBulgaria Topenergo 100 -Poland Europol Gaz 50 POGCHungary Panrusgas 50 MOLSlovakia 50 SPPGermany Wingas, WIEH 35 WintershallFinland Gasum 50 NesteUK Interconnector 10 Distrigas, BG,

etc

3. Energy restructuring:

A. Exports and trade of electricity in CEE

Countries in CEE are developing international trade in electricity, without needing to privatise. Bosnia re-establishes exports to Croatia (& Slovenia) 46

Bulgaria exports electricity to Turkey 47

Romania may export to Italy from new (Canadian/Italian built) nuclear plant. 48

EU study shows scope for Balkan regional energy market in electricity 49

There are proposals for a Baltic ring 50, covering electricity and gas - using gas-fired stations on the south coast of the Baltic. 51 But some critics say would this might perpetuate unsafe but cheap sources of energy eg Ignalina 52. The three Baltic states - Lithuania, Latvia and Estonia - are discussing forming a unified grid, sharing diverse power sources 53 Helsinki Energy is co-operating with a CHP plant in Estonia. 54

B. Internationalisation and competition: Scandinavia The Nordic energy market is already international (covering Norway,

Sweden and Finland) and liberalised (open to competition). However, very little privatisation has taken place. In fact, state-owned companies dominate this competitive market.

There is aggressive competition between generating groups to buy distributors in Nordic countries. The chief executive of IVO warns that this may push up prices for consumers. 55

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C. Public enterprisePublic enterprises are actively involved in competition and restructuring in electricity in western Europe. In CEE too, state-owned companies and municipalities are seeking to extend or defend their presence. The major companies competing in the Scandinavian energy market are state-

owned - Vattenfall, IVO, Stadtkraft, and EDF. Private sector groups, including Veba/PreussenElektra, and Texas Utilities/Eastern Group, are playing only a minor role.

German and Italian municipals companies are actively competing for shares in the new electricity markets. For example, three German municipalities - Mainz, Wiesbaden and Darmstadt - are merging their utilities in order to protect and advance their market position against the large energy groups. 56

Hungary's MVM may be interested in buying into other countries; 57 Slovakia's SPP has done so, buying into Czech gas. 58 59 60

Czech municipalities are attempting to buy more shares in South Bohemian power (JCE)61. Another Czech energy company, SME, is large, profitable and mainly municipal 62 - and is developing new customer service operations 63. Communes in west Bohemia are keeping their shares in ZCE 64, and north Bohemian communes are keeping their shares in gas company SCP. 65

D. Privatisations: prices, regulation and profit There is continuing conflict over prices and profits of privatised utilities in Hungary.

Hungarian gas and electricity prices rose about 50% between December 1996 and January 1998. No price rises were allowed in April 1998 - the devaluation trigger was not reached, and there was no costs justification. 66

Elmu (RWE) complains that its rate of return (RoR) still does not reach 8%. The company's profits have increased, however, thanks to price rises - revenue grew in 1997 by 18%, although the volume of electricity sold only grew by 1%.67 RWE also complain about the long grace period required for electricity cut-offs (90 days).

Bayernwerk - which owns shares in four Hungarian energy companies - complains that its RoR has not reached 8% not reached, costs not adequately reflected in prices.68 But Demasz (EdF), Edasz (EdF/Bayernwerk) and Dedasz (Bayernwerk) all pay dividends - Edasz makes 7.9% RoR, and Dedasz pays all its profits as dividends. 69

The Czech republic allowed price rises of 24% rises in March 98, and more will come 70; CEZ wanted more to boost profit margins 71. EU accession would mean energy prices increasing to three times as high as their present level. 72

E. EU accession: nuclear safety and environmental regulations Concerns have been expressed over the safety of a number of nuclear plants in

CEE, including: Chernobyl (Ukraine), Ignalina (Lithuania), Kozlodhuoy (Bulgaria), Mochovce (Slovakia), Temelin (Czech republic), Krsko (Slovenia).73 In the EU's formal document discussing accession by CEE countries: “the importance of being ready for the internal energy market and the role of trans-European networks are a common theme..Nuclear safety on the other hand is a core topic solely in the case of Slovenia. Nuclear energy gets specific attention in a number of cases. Bulgaria is reminded of the effort which needs to be made to upgrading units 5-6 of Kozloduy and to fulfil its commitment on phase closure of units 1-4, Lithuania needs a "realistic" decommissioning and closure plan for the Ignalina plant, Estonia will have to follow closely the nuclear waste situation at the former Soviet Paldiski naval submarine base, while Slovenia may have to re-think its strategies once it

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has the results of the seismic studies of the area around the Krsko nuclear plant....” (FT Bus Rep 01 Apr 98)

Complying with EU environmental regulations can be costly for some non-nuclear generators too, eg Estonia's oil-shale operations. 74

F. Gas: restructuring in central Europe Restructuring of Austrian energy companies, brings in EdF,

Austrian defensive alliance

Gas storage and transit seen as key role by GdF, OMV, Italgas etc MOL signs agreement to supply Bosnia with gas from Russia; aims to extend

network to supply Croatia and Romania as well. 75

Bulgargaz to cut prices since new Gazprom deal, and invest more in transit pipelines. 76

Range of new connections opening with transit roles for Distrigas, and transit & storage roles envisaged for Ruhrgas, GdF as well (eg ENEL imports lots of Nigerian LNG, to be stored by GdF; UK may use GdF storage). 77 GdF transit as core activity for Europe

Interconnector as core for Tractebel/Distrigas Note OMV Austria plans to build gas storage to enhance role as hub for European

gas transmission. OMV doesn't fear gas competition due in 1999 because affects producers, whereas distributors like OMV benefit from producer price cuts. Hence better off than Austrian electricity producers or verbund, whose problems are not with grid but with production'. 78

Italgas buys gas from Libya etc , to sell on to Bosnia and Albania, ultimately rest of Balkans. Also bought into Egyptian gas, for sale to Turkey then later elsewhere. 79

Italgas sign megadeal with Croatian INA for undersea pipeline supply, as alternative to Russian gas. Croat oil/gas co INA uses deal to argue for gas-fired power station. 80

G. Gas: diversity of sources Romania: Wintershall signs pipeline deal with Romgaz for link via Ukraine.81 Also

Ruhrgas signs deal to supply non-Russian gas. 82

Gazprom buys out Bulgargas share in Topenergy 83, but Bulgaria gets cheaper gas 84

Italgas signs deal with Slovak SPP for Gazprom gas, and discusses with SPP the joint ENI/Shell/Gazprom alliance. 85

4. Finance

A. Sources of finance It is now quite normal for utilities in CEE, private or public, to raise investment finance from international institutions (such as the EBRD, or the World Bank) or international banks. Some examples are listed below.

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Credit ratings of BBB or better have been given to a number of utilities. Recent examples include Czech heating firm SME (BBB rating) 86 and Lithuanian electricity company Lietuvos Energija (BB+).87

Multinationals may no longer be so necessary for obtaining finance. The management of Pecs power plant in Hungary have claimed that the withdrawal of Bayernwerk from a new power plant project is no problem because they already have 10 banks wanting to lend without even being asked. Pecs power was bought by a management team backed by US finance consortium Croesus.88

The policies of international institutions may however be loaded in favour of privatisation. For example, the EBRD have invested $40m in projects for decentralising and privatising Renel 89; and $117m in restoring Albania's electricity grid, but part of this is to make a start on privatising 90

Spreads: table of examples (company/project - pub/private - source - spread)

S Company Country

Date Value Details91

, 92

HEP Croatia

Elec May 1998

DM160m. Libor +85/90, 3+3yrs.

For reconstruction of thermal power station in Zagreb, new gas power station in Zagreb, building grid link with Hungary.

93 Matrai Eromu

Hungary

EG May 1998

HUF 45bn (=$214m), Bubor+?, 15 yrs)

46.1bn HUF international bank loan signed May 1998 to improve/build generating blocks. Total cost 83 bn HUF, rest from own resources.

94 INA Croatia

Gas May 1998

USD$150m, Libor+75, 5 years

Aggressively priced, INA asked for the loan at this level and got it.

SEZ Slovakia

ED 1998 $20m loan, LIBOR+110, 5 years

Stredoslovenske Energeticke Zavody (SEZ)

95 Transgas Czech republic

GT May 1998

$155m, 3 years

B. Pre-privatisation restructuringCompanies are often given considerable relief of debts by the state in the build-up to privatisation. This obviously makes them more attractive to the private buyers, but is at the expense of the public which takes on the burden of the cancelled debts.

There are three cases where this may be happening in CEE at present:

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In Hungary, the pre-election plan was for MVM was to have a cash injection and debt relief due to losses from sales - because it was being prepared for privatisation! 96

In Romania, Renel expects to get debt written-off in the planned build-up to privatisation. 97

Lithuania has written off 353m Litas of debts of Lietuvos Energija. 98 99

5. Job cuts

A. Threats to jobs

The process of privatisation and liberalisation brings threats to employment. These include a number of factors:

Competition - an incentive to cut costs, including labour, to undercut other companies on price. In practice, this does not apply where there are monopolies, public or private.

Privatisation - where jobs may be cut to make the sale more attractive to buyers, and so get a higher price for the state;

Private operation, where shareholders want to see costs cut to boost profits - mergers and takeovers are a special case of this motive.

Privatisation has usually transferred public monopolies to the private sector, without creating further competition. It is different where there is real competition between suppliers, as may now be the case with electricity generation in some cases, but not for other energy companies.

The Austrian gas company OMV, for example, has stated that there is no real pressure for cost-cutting in gas distribution - the competition exists between producers, which means distributors can buy at lower prices - and then provide an efficiently -run monopoly service:" Hall, in charge of exploration and production (E&P) at Austria's biggest industrial company, said OMV's gas transmission and storage business provided substantial insulation against any potential loss of income which could follow the introduction of supply competition in 1999. 'Of course we are under pressure to cut costs and rationalise but I can not see how a competitor can do what we do cheaper,' Hall said. Hall said OMV, which satisfies 90 percent of Austrian annual demand of about 6.5 billion cubic metres, was in a much better position than Austrian electricity generators who are also facing competition from February next year. 'The difference is that we are not producing natural gas - we produce just 10 percent of annual Austrian demand - our job is only the transmission of natural gas. Competition among producers means we can buy it more cheaply.' 'When you look at (national grid operator) Verbund the trouble it faces is not with its grid but with its production facilities,' Hall said." 30 Apr 98

However, some energy companies which are not faced with competition are cutting jobs. In at least one case, this is specifically at the request of the multinational shareholder.

Estonia Eesti Gas, which is jointly controlled by Gazprom and Ruhrgas, has announced that

it will cut the number of employees from 720 to 500 jobs by the end of 1999, a cut of 30%. This is partly achieved by merging divisions. 100

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Czech republic: Demand for cost reductions from foreign shareholders (National Power, UK) persuaded Prazska

Teplarenska to reduce the number of employees in the first quarter of 1998 by 180. Now PT employs about 1,500 people and this number will decrease by the end of the year by another 180 or so. (20%)

JCE says competition means 20% job cuts by 2004. ZCE plans to release more than 250 of its 1509 employees by the end of 1999 , a 17 percent cut in its

workforce.

Hungary: 40,000 employed in Hung electricity industry, a fall of 9,000 since privatisation in

1995. (18%) Bayernwerk Hungaria says plans include 'cost-cutting'

Country Company Sector % cut

Comment

Estonia Eesti Gas Gas 30% Plans cut from 720 to 500 jobsHungary All Electrici

ty18% Jobs fall from 49,000 in 1995 to

40,000 in 1998.Czech republic

Prazska Teplarenska

Heating 22% Cuts jobs from 1,680 to 1,320 by end 1998

ZCE Electricity

17% Will cut 250 jobs from 1,509 by end 1999

JCE Electricity

20% Expects 20% job cuts by 2004

Spain Endesa Electricity

35% Plans to cut 8,200 jobs from 23,400 by the end of 2002.

UK All Electricity

43.9%

Jobs in electricity industry fall from 150,548 in 1989/90 to 84,445 in 1996/1997

B. Hungarian trade union agreementIn this context the agreement reached by the Hungarian unions serves as a model. The agreement provided for 5% of the privatisation proceeds to be used for

Unemployment benefit supplements Retraining Early retirement payments Other Trade union uses101

6. General critiques of electricity privatisation

A. No efficiency gain from privatisationFor the electricity supply industry (ESI) , a comprehensive comparison of relative efficiency has shown that there is virtually no difference between public and privately-

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owned comparisons. The study, by M. Pollitt, published in 1995, compared production costs of public and privately-owned utilities in electricity generation, transmission and distribution from 14 countries. These included the UK, France, Germany, , Greece, Ireland, Denmark and Italy, as well as the USA and Canada.102

For generation, the study found that there was little difference, and the results provided "strong empirical support for the view that, given the technology employed, IOUs [privately-owned plants] and MUNIs [publicly-owned plants] were being operated equally efficiently."(Pollitt, p.187) A small difference appeared in baseload generators, where the publicly-owned companies appeared to be handicapped by relatively less cost-efficient investments, which the author suggests may be due to government influence on investment choices. This however ignores any costs and benefits from environmental or other factors involved in these decisions.

In transmission and distribution, the conclusion again was that there was "no significant difference in technical efficiency between the two ownership types" (Pollitt, p.188)

The study pointed out that there are, however, clear efficiency gains to be obtained from economies of scale and vertical integration. The overall conclusion was that the only possible savings from privatisation were long-term cheaper generating costs, as a result of more cost-effective investment decisions: "However, in the short run, given existing technology, we cannot expect privatisation to lower costs. We find no evidence for expecting lower costs in the transmission and distribution functions, in the short or the long run. In the ESI as a whole, it is likely that the biggest gains are from restructuring and better government management of state-owned electricity assets" (Pollitt, p.189)

Indeed, the privatisation process may itself have created inefficiencies. The generating capacity of the UK ESI was split into only two companies for the purposes of privatisation. This was more attractive to investors, but empirical evidence strongly suggests that the greatest efficiency would have been achieved by dividing the plants amongst 10-20 operators.

B. UK Electricity privatisation: who gained?The World Bank has published a paper which concludes that UK consumers have lost billions of pounds as a result of electricity privatisation.*

The authors calculated the efficiency savings (mainly due to reductions in labour costs in the electricity companies and job losses in the coal industry), environmental effects, investment and fuel use effects, and the costs of reorganisation. On this basis - ignoring the cost of lost jobs and income - the authors estimate the total benefits to be between £6bn and £11.9bn - equivalent to a reduction of about 3.2 to 7.5 percent of prices.

They then examined the actual distribution of benefits - and found that the price reductions did not happen. Prices did not fall as fast as costs, and so: "Power purchasers seem to be paying higher prices than they would have under continued public ownership".

The reason for this, say the authors, was that "higher company profit margins offset lower costs". This happened to such an extent, that "the shareholders benefit by more than the total net benefit". So none of the savings ever reached the consumers (let

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alone the employees). In fact, consumers lost between £1.3bn and £4.4bn as a result.Note No. 124 September 1997

UK Electricity privatisation - who won, who lost £ billions at 1994–95

pricesPower purchasers (loss) -1.3 to -4.4Government (including sales proceeds)

(gain) 1.2 to 0.4

Shareholders (less sales proceeds)

(gain) 9.7 to 8.1

*The Restructuring and Privatization of the U.K. Electricity Supply—Was It Worth It? David M. Newbery and Michael G. Pollitt. (World Bank Public Policy for the Private Sector Note 124 September 1997. http://www.worldbank.org/html/fpd/notes/124/124newbe.pdf).

C. Recent problemsSome recent events have highlighted the problems with privatised electricity systems.

In New Zealand, the semi-privatised electricity company serving the city of Auckland failed to maintain adequate electricity supplies over a period of weeks. This seriously affected business as well as domestic customers.

In Pakistan, the government is refusing to continue paying the private company Hubco the prices agreed by the previous government.

In the UK, the new Labour government imposed a windfall tax on the profits of utilities, which cost the two generating companies over £500 million. But the two companies - Powergen and National Power - managed the selling price of electricity to commercial customers so that they collected about £500m more than the increase in costs over the next year.

In Brazil, the privatisation of electricity in Rio de Janeiro has led to price increases of over 16% above inflation, as well as power cuts.

7. Annexes: Who Owns Whom

A. Who Owns Whom in SwedenCompany Sector Parent Parent

countryPerce

nt owne

d

Note

Vattenfall Electricity State Sverige 100Sydkraft Energy Veba Deutschla

nd27.3

Statkraft Norge 22 Statkraft increased share in 1996/97

Gullspang Kraft

Electricity IVO Suomi 50.4 IVO bought control in 1996

Communes

Sverige 13.8

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http://www.worldbank.org/html/fpd/notes/124/124newbe.pdf


Stockholm Energi

Electricity Communes

Sverige 100 Has a long-term agreement with IVO

Granige Electricity EDF France 51 EDF bought control in 1996Sydkraft Sverige 20

Nouukoping Energi

Electricity Vattenfall

Sverige 100 Vattenfall bought control in 1996

Orebro Energi Electricity Sydkraft Sverige 100 Sydkraft bought control in 1997

Communes

Sverige 18.9

Svenska Kraftnat

Transmission State Sverige 100

Sydgas Gas Sydkraft Sverige 100 Sole distributor of gasVattenfall Naturgas

Gas Vattenfall

Sverige 51 Was 100% owned by Vattenfall till 1996

Statoil Norge 14.5Ruhrgas Deutschla

nd14.5

Neste Suomi 10DONG Danmark 10

Vattenfall have also bought energy companies in Finland and Norway, and have started a venture in Germany (Vasa Energy).

Sydkraft has also bought 12.5% of shares in HEW (Hamburg Stadtwerke), along with Veba/Preussenelektra.

Statkraft have also bought 20% of Oslo Energi.

B. Who Owns Whom in the UKCompany Parent Country % ownedEast Midlands Electricity Dominion USA 100%Eastern Electricity (Energy group)

Texas Utilities USA 100%

London Electricity Entergy USA 100%Manweb Scottish Power UK 100%Midlands Electricity** Cinergy, GPU USA 50%Northern Electric Calenergy USA 100%NORWEB United Utilities UK 100%Scottish Power Scottish Power UK 100%SEEBOARD CSW USA 100%Southern Electricity Southern Electricity UK 100%SWALEC Hyder UK 100%SWEB Southern Company USA 100%Yorkshire Electricity AEP USA 50%

New Century Energies USA 50%* Midlands is owned by Avon, which is in turn owned 50/50 by Cinergy and GPU

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Other UK energy companiesSector Company Parent Parent Electricity Grid National Grid National Grid UK

Electricity National Power National Power UKElectricity Powergen Powergen UKElectricity First Hydro Edison International USA

Electricity Nigen Tractebel/Lyonnaise des Belgium/AES USA

Electricity IVO Energy GPU USAIVO Finland

Electricity Intergen Bechtel USAPacific Gas & Electric USAICI UK

Energy/heating AHS Emstar Generale des Eaux FranceCGC (UK) Generale des Eaux France

Meter reading Itron (UK) Itron USA*Tractebel is now over 50% owned by the Suez-Lyonnaise des Eaux group

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8. ENDNOTES

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27 "24 Mar 1998 EUROPEAN GAS - PROGRESS IN RESTRUCTURING: PETROLEUM ECONOMIST Reuter Textline (Q2:197) The central European countries are making progress towards restructuring their gas industries. However, some are progressing faster than others, as Ivan Berenyi describes. Of the six countries in central Europe, Slovenia, Hungary, Poland and the Czech Republic await entry into the European Union (EU). Croatia and Slovakia, however, have not been invited to accession talks; Croatia because of its foreign policy and Slovakia on account of its incomplete democratisation and insider-dominated privatisation methods, which tend to make foreign investors wary. SLOVENIA The richest central European country, with GDP per capita of over Dollars 10,000, Slovenia's economy remains respectable, if unspectacular. It has a population of only two million. It needs to speed up privatisation and rein in public expenditure and wage inflation. The natural gas business started in 1975 with the founding of Petrol Zemeljski Plin (PZP), effectively the regional gas company within Yugoslavia. A 640-km pipeline network was built during the 1975-78 period for the distribution of Russian gas, imported via Slovakia and Austria. At that time, Slovenia began supplying gas to Croatia. Intensive pipeline construction ensued, primarily to supply heavily-industrialised regions, gradually increasing the network by 50% to 939 km. Regulation is by a sophisticated electronic control system at Ljubljana, with over 200 high-and low-pressure metering and supervisory stations. Construction is continuing at a rate of 15-25 km a year. PZP started selling gas in 1978, with 48 large industrial users and three gasworks - which supplied city gas previously - as the initial customers. Consumption hovered around the network capacity of 1.3bn cubic metres a year (cm/y), including re-exports to Croatia, until falling dramatically with the break-up of Yugoslavia in 1991. Sales have since increased, from 674m cm in 1992 to 918m cm in 1997 (see Table 1). With limited domestic reserves, local production is only about 13m cm/y, an increase from 8.5m cm/y before 1991. Imports became more diversified in 1992, following a link with the TransMed subsea pipeline, bringing gas from Algeria, via Tunisia and Italy. About 60% of imported gas currently comes from Russia and 40% from Algeria. In September 1995, PZP was renamed Geoplin. With only about 140 employees, Geoplin has increased its pipeline-linked buyers from 142 in 1992 to 175 by 1996, and transformed a loss of Dollars 682,000 in 1992 into a profit of Dollars 4.1m in 1996 (see Table 2). In 1996, Geoplin invested Tr568.8m (Dollars 4.7m) to complete the renovation of the Rogatec border metering station and eight pipelines projects, including the 11.9-km Store-Lasko sector. It plans to build a pipeline parallel to the existing one from the Austria-Slovenia border to the Slovenia-Croatia border, a compression station for the Slovenian pipeline system, and is considering a pipeline for Russian gas via Hungary. The state holds 24.5% of the equity of Geoplin, six of the 12 regional gas distributors hold 34.6%, with the remaining 40.9% held by 133 shareholders, including the other six distributors. According to president Albin Rome, profit increased by 20% in 1997. Bolstered by long-term supply contracts - effective with Gazprom until 2005 and with Sonatrach until 2007 - Geoplin rents underground storage capacity in Austria, Croatia and Italy equivalent to about 15% of annual consumption. However, this falls short of the vital maintenance of a strategic reserve. Underground facilities of its own, for which there are tentative plans, at either Pecarovci or Dankovci, would meet requirements, although there are insufficient funds at present. Although Geoplin claims to be a privatised company, in reality it has remained an entity of 'social ownership' of the old-style Yugoslav model, and a section of the Energy Department of the monolithic Ministry of Economic Affairs. Owned by its customers - mostly parastatals - and briefed to keep prices low, rather than return profits, it is governed in parallel by a labour council and a board of directors (like PZP had been initially). The IMF's

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review of Slovenia, at the end of January, warned of a lack of structural reform hidden behind impressive indicators. In 1996, gas represented 11.3% of Slovenia's primary energy consumption. Other components were oil (41.3%), coal (22.5%), nuclear (16.5%), hydro (4.5%) and wood (3.9%). SLOVENIAN GAS CONSUMPTION TABLE 1 mcm* 1997** 918.0 1996 839.5 1995 819.8 1994 710.4 1993 684.3 1992 674.3 *million cubic metres **estimated GEOPLIN FINANCIAL DATA TABLE 2 Turnover Profit/(Loss) Return $m $'000 % 1997* n/a 4,900 n/a 1996 136 4,088 3.0 1995 118 3,177 2.7 1994 130 1,043 0.8 1993 114 (572) (0.5) 1992 85 (682) (0.8) * estimated CROATIA Together, Croatia and Slovenia, the two former Yugoslav republics, have an integrated trans-national gas sector. Occupying an area of 56,410 square km and with a population of approximately 5.2 million (together with eastern Slavonia, re-annexed from Serbia on 15 January), Croatia's only similarity with Slovenia is its structural reform and privatisation programmes. It has always produced over 60% of gas consumed, and with potential offshore reserves it appears to be heading for a positive gas future. Consumption in 1996 totalled 2.65bn cm, of which 1.78bn cm was produced from gasfields in the Pannonian basin and 0.88bn cm was Russian gas imported via the Ukraine, Slovakia, Austria and Slovenia. Gas represented 27.68% of national primary energy in 1996, and is unlikely to have changed in 1997. In 1997, 2.74bn cm of gas was consumed, 1.70bn cm of it locally produced and 1.04bn cm imported. The projection for 1998 is 2.75bn cm in total consumption, 1.65bn cm of it local and 1.10bn cm imported. Future production is likely to come from the Dinarides (still under exploration) and north Adriatic offshore gasfields. The north Adriatic fields are being developed by Inagip, a joint venture formed in 1996 by INA-Naftaplin and Agip, of Italy. The total projected investment of the north Adriatic is Dollars 320m, Dollars 166m from Agip and Dollars 154m from INA. Agip is to build a gas pipeline from Italy to the Croatian coast, through which Eni is to supply 2.25bn cm/y for 24 years from 2001, under a contract signed in Zagreb, in January. The Adria LNG project on Croatia's Krk island, and the Volta project - which supplies Russian gas to Italy via Hungary and Croatia/Slovenia - appear to have been shelved in the wake of the north Adriatic development. INA-Naftaplin, which also has a gas exploration project in Albania, is a state-owned joint-stock company and is the gas subsidiary of the INA group, Croatia's largest conglomerate. It is due for partial privatisation this year and will become the second integrated oil and gas company of central Europe after MOL, of Hungary. Most of the regional gas distribution companies of Croatia are owned by municipalities and local councils. HUNGARY Reaping the benefits of political stability and austerity measures introduced in 1995, Hungary's economy is healthy and still improving, although inflation remains stubbornly high. The economy is largely in private hands, with all structural reforms (conforming to EU requirements) completed. Foreign investment inflows continue at an unparalleled rate for the region. MOL is currently the sole fully-integrated oil and gas company, as well as being the country's largest. Domestic gas production is in decline (see Table 3). Having long contributed 50% of national consumption, it has fallen to one-third, with the rest of the 12.5bn cm/y requirement made up by Russian gas imported via Panrusgas, MOL's 50:50 joint venture with Gazprom. To reduce excessive gas dependence on Russia, the HAG pipeline, linking Hungary to the western European grid, was commissioned in October 1996, since when 10-year supply agreements have been concluded with Ruhrgas (for 500m cm/y) and Gaz de France (400m cm/y). Negotiations are also being conducted with other groups. By 2010, domestic gas

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production is expected to drop by about 22% from current levels, to about 3.4bn cm/y, while demand is expected to increase by 20%. This highlights the importance of diversified, well-balanced imports, and of adequate storage capacity to ensure reliable on-demand availability in winter, when consumption is five or six times greater. Currently, storage accounts for 112 days of peak winter imports, with the first phase of the Zsana underground storage facility complete. Preparations are in place for Phase 2. Gas represented 31% of the national energy requirement in 1993, rising to 37.7% in 1996. Peak daily demand is 72.7m cm, but is projected to reach 84m cm in 2000 and 95m cm in 2005. Transmission to neighbouring countries is also increasing. To date, nine companies have been licensed as regional gas suppliers, linking MOL to end-users via a rapidly-growing distribution network. From 1995 to 1997, part of their equity (ranging from an initial 47-49%, to a controlling interest) was sold by APV, the state property agency, to companies such as Italgas, Ruhrgas and Gaz de France - companies with the necessary funds to cope with expansion of the network and to brave the period of tariff normalisation, and able to aid Hungary's EU integration. HUNGARIAN GAS PRODUCTION Table 3 bcm* 1997 4.339 1996 4.663 1995 4.882 1994 4.806 *billion cubic metres National reserves: 96bn cm POLAND The largest of the region's countries, with a population of 39 million, Poland is the country most likely to be granted EU entry. However, its budget situation is worrisome and many major enterprises remain unrestructured and in state hands, especially Polskie Gornictwo Naftowe I Gazownictwo, Polish Oil & Gas (POGC). Essentially a gas company responsible for the entire natural gas sector, from exploration and production to transmission, storage and distribution, POGC is made up of 23 affiliates, each with its own budget. Total assets are Dollars 4.5bn, its turnover is just below Dollars 2bn a year, it has 67 exploration concessions and about 45,000 employees. It was converted into a state joint-stock company on 30 October 1996, which represented the first of three steps for its restructuring. The treasury holds 100% of the shares, but the ministry for the economy is in charge of restructuring and eventual privatisation. National gas consumption is about 11-11.5bn cm/y, representing 8.6% of primary energy, with 42-45% from domestic production and 55-58% from Russian imports. By 2010, consumption is likely to increase to 22bn-27bn cm/y, about 12-15% of primary energy. The country's natural gas reserves are about 96bn cm. Domestic production is set to increase from 4.65bn cm in 1994 to 5.4bn cm by 2000, then to decline to 4.9bn cm by 2010. In 1998, Gazprom will supply 7.6bn cm, 70% for barter. To reduce reliance on Russian gas, POGC signed a letter of intent with Nederlandse Gasunie, on 13 February 1997, for the supply of 2bn cm/y of Dutch gas for 15 years, with further import diversification to come from Norway. EuRoPol GAZ is building the Polish section of the Yamal-western Europe transit gas pipeline, comprising two parallel, 682-km lines and five compressor stations. The target capacity of 65.7bn cm/y will be reached in 2010, and Poland will retain 250bn cm over 25 years under a contract signed with Gazprom in late 1996. The country has 1bn cm of coal-bed methane reserves, but the full potential has yet to be assessed. There are four underground storage facilities, with a combined working capacity of 620bn cm, and 6.5m cm/d withdrawal capacity. Current plans are for additional storage, and LNG imports from Qatar, Nigeria, Norway and Algeria are being considered. CZECH REPUBLIC After its separation from Slovakia on 1 January 1993, the Czech Republic, with a population of 10.4 million, enjoyed a reputation as the leading reformer. But last year it suffered a currency and foreign investment crisis, a change of government and politico-economic uncertainty, largely for having swept structural reform under the carpet. Such events halted the privatisation of the eight regional gas distributors and hit Transgas, the company

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exclusively responsible for gas imports and the operator of the four pipelines, built between 1972 and 1988. By having to pay more for Russian gas and to sell below cost price, with the ministry of finance unwilling to agree to any rise in domestic tariffs, Transgas suffered a huge loss and shelved investment projects. The country has 3.9bn cm of gas reserves in Moravia province, adjacent to the Slovak border, and Moravske Naftove Dole, the sole producer of domestic gas, lifts 280m-310m cm/y. Russian gas is imported at the rate of 9bn cm/y, but there have been intermittent negotiations with Ruhrgas, Gasunie and the Norwegians to diversify supplies. Attempts by distributors to import direct were prevented by the government, thus confirming Transgas' monopoly, although it expired officially in 1997. SLOVAKIA Slovakia, with a population of 5.4 million, is presently the main conduit for Russian gas into central and western Europe. With declining domestic reserves, currently about 25bn cm, domestic production has been hovering at about only 300m-320m cm/y. Yet gas remains the principal constituent of primary energy consumption in the country, rising from 25.9% in 1993 to over 30%. Imported Russian gas - the majority received in transit fees, the rest in barter - totalled 6.6bn cm in 1996, and is set to rise continuously. Currently, there is a supply contract between Gazprom and SPP, the national gas company, valid until 2008. There are conflicting projections for gas consumption, from both SPP and the ministry of the economy. Estimates are for 7.7bn cm (SPP) or 8.6bn cm (ministry) in 2000, 9.0/8.7bn cm in 2005 and 10.0/11.4bn cm in 2010. Gazprom has been seeking an equity stake in SPP since 1995 and a joint venture was signed at the beginning of 1998."28 " CZECH REPUBLIC After its separation from Slovakia on 1 January 1993, the Czech Republic, with a population of 10.4 million, enjoyed a reputation as the leading reformer. But last year it suffered a currency and foreign investment crisis, a change of government and politico-economic uncertainty, largely for having swept structural reform under the carpet.Such events halted the privatisation of the eight regional gas distributors and hit Transgas, the company exclusively responsible for gas imports and the operator of the four pipelines, built between 1972 and 1988. By having to pay more for Russian gas and to sell below cost price, with the ministry of finance unwilling to agree to any rise in domestic tariffs, Transgas suffered a huge loss and shelved investment projects.The country has 3.9bn cm of gas reserves in Moravia province, adjacent to the Slovak border, and Moravske Naftove Dole, the sole producer of domestic gas, lifts 280m-310m cm/y. Russian gas is imported at the rate of 9bn cm/y, but there have been intermittent negotiations with Ruhrgas, Gasunie and the Norwegians to diversify supplies. Attempts by distributors to import direct were prevented by the government, thus confirming Transgas' monopoly, although it expired officially in 1997." (see 1)29 "20 Feb 1998 IEA URGES GAS SECURITY BOOST: International Gas Report FT Bus Rep: Energy (Q3:81)

Key European gas transit country Slovakia has been urged to take action toboost both competition and supply security in its strategically importantnatural gas industry. The latest International Energy Agency (IEA)assessment of Slovak energy policies* particularly calls for action on thepricing, storage and supply diversification fronts. The agency reckons theSlovak Republic has already made "substantial progress" in its efforts toestablish a market oriented energy sector."But major tasks still lie ahead, in particular improving flexibility,

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diversification and efficiency of the energy system." It says the country's"unique" location on the main transit route for Russian gas to Europe makesit "critical" to energy supplies for western Europe - about 80% of allRussian gas exported to central and western Europe being pumped acrossSlovak territory, including over 25% of total west European gas supplies.Slovakia itself, however, is poorly endowed with resources, importing nearlyall its oil and gas from Russia and buying in 89% of its energy needs intotal. In light of this high import dependence, the IEA urges the governmentto improve its energy security. "Fuel import sources should be diversified -mainly for gas and oil - and the country's potential to respond adequatelyto supply disruptions should be enhanced by increasing oil emergency stocksand gas storage capacity."The agency also recommends "further distancing" of the energy industry fromgovernment influence and sees a need for more competition in the energysector. It encourages the government to reform electricity, gas and heatprices "without delay" so prices reflect supply costs and provide theindustry with sufficient profits to enable it to make necessary investments."Energy prices for households are insufficient to cover costs."The report says Slovakia's current gas industry structure and legalframework protect the industry from competition and it is "essential" thatnew energy sector legislation creates a framework for a more competitive andefficient industry. If a concession system proposed in the country's newEnergy Law is to work, criteria for granting concessions and possibilitiesfor third party access to pipeline systems "have to be clarified".Even in a situation where the government decides not to privatise integratedgas monopoly SPP, the IEA sees a need to unbundle its various activities toclarify revenue/expense flows in order to create the right incentivestructure for each activity and to create a 'level playing field' for newmarket entrants. It also says the government should reconsider separation oftransit activities from storage. It notes that "uniquely" in the Europeangas industry, Slovakia has separated storage from the high pressuretransmission business.It has also privatised the storage company while the other operations remainunder state ownership. "Since regulatory powers seem weak, thesearrangements can be questioned because storage - both for modulationpurposes and for strategic reasons - is considered vital to nationalinterest in most IEA member countries. The government is encouraged toenhance its regulatory and supervisory powers."The report further says the government should ensure that privatisation ofmost of the storage capacity and separation of storage activities from therest of the gas chain in terms of ownership does not weaken incentives tobuild sufficient storage capacity. Depending on just a single source for itssupplies, Slovakia has a strategic interest in diversification that shouldbe a priority in energy policy making. "The government should enhance gassupply security through new contracts and swap arrangements withinternational players and it should develop interruptible contracts on a

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commercial basis."The IEA notes current storage capacity in relation to Slovakia's own use isalready above most OECD Europe country levels at 2.1 Bcm (1.3 Bcm fordomestic use) in relation to 1996 gas imports of 6.7 Bcm. The governmentalready plans to increase storage capacity to 3.8 Bcm and boost the share ofnon-Russian supplies, both of which are seen by the IEA as "encouraging".But it adds a recent agreement between SPP and Russia's Gazprom for transitand domestic supplies until 2008 "leaves little room for non-Russian gas"."30 "22 Apr 1998 GAS PRIVATISATION TALKS GET APPROVAL: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:25)

TALLINNThe Estonian privatisation agency said on Wednesday that it has authority tostart talks for the state's last 10 percent stake in Eesti Gaas, expected tobe with Finnish Neste .'The agency's board received the right to start negotiations with a thirdparty,' said Epp Kirss, the agency's press officer.The decision opens the way for the purchse of the stake by a company otherthan the current major shareholders, Russia's Gazprom and Germany's RuhrgasAG.Estonian Gas has already said that Neste had been picked as the third keyshareholder and that Ruhrgas and Gazprom were not opposed to the idea.Eesti Gaas is 41 percent owned by Gazprom and 20.5 percent by Germany'sRuhrgas. The state holds 10 percent with small investors holding the rest."31 "21 May 1998 LATVIA-GAS DATES DELAYED BUT OFFER SEEN IN JULY-AGENCY: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:27)

RIGALatvia's privatisation agency on Thursday postponed setting a date for apublic voucher offering for shares in state-owned Latvian Gas but said thesale would probably take place in July.The agency had said it would make the decision on Thursday but postponed itso workers of the monopoly utility could prepare for a separate employeevoucher offering, agency administrative department head Talis Linakitis toldReuters.'The public offer could take place some time in July, with the final datesto be set in June, when trade unions are ready with the employee sharesubscribtion,' Linkaitis said.Latvia plans to sell a total of 30 percent of the gas company by the end of1998, 10 percent for vouchers to employees, 15 percent through a publicvoucher offering and five percent in a cash-for-shares auction on the Rigabourse.'The timing of this (cash) auction will be determined separately dependingon the market conditions and will be not dependent on when the public offergoes ahead,' Linkaitis said.Latvian Gas is 65.5 percent state-owned and has a share capital of 36

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million lats. Its 1997 net profit was 1.5 million lats on turnover of 87million lats.In a previous round of privatisation a consortium of German Rurgas andPreussen Elektra bought 16.25 percent of the utility and Russian Gazprompurchased a stake of the same size."32 "01 Dec 1997 LITHUANIAN GOVERNMENT ORDERS SPEED-UP OF PRIVATISATION PLANS: East European Energy Report FT Bus Rep: Energy (Q3:30)

Under pressure to accelerate the pace of divestments of state owned assets,Lithuania's ministry of economy (MoE) has instructed the nationalprivatisation agency to complete its framework document, outlining whatmeasures are required to privatise the country's energy systems, by thismonth.The Lithuanian Privatisation Agency (LPA) was originally tasked withcompleting the framework document in July 1996, and was asked to have thereport finished by 1 August last. However, LPA officials stated that theagency is seriously under resourced and unable to meet all projectdeadlines.The MoE completed its own privatisation blueprint for the national energysystem in late 1996. According to this proposal, which will be consideredalong with the LPA's framework document, the government should dwindle thestate energy group Lietuvos Energija into separate production anddistribution companies consisting of seven to eight individual enterprises,with the majority engaged in regional, national and trans-nationalelectricity distribution.Apart from the framework document, the LPA is also tasked with drafting aworking proposal setting out how best to attract foreign interest in theprivatisation process. Nordic energy groups Vattenfall, Statskraft, ImatranVoima Oy and Germany's Preussen Elektra, have already indicated theirinterest in participating in a future bidding process."33 "12 May 1998 GAZPROM MEETS OVER LITHUANIA GAS INVESTMENT: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:29) VILNIUSOfficials from Russian natural gas giant Gazprom arrived in Lithuania onTuesday to start a four-day review of the operations of state-run LithuanianGas , officials said.'Today two representatives from Gazprom arrived at our company to look overour situation and to analyse our economic and financial documents,'Lithuanian Gas commercial director Vidmantas Chepukonis told Reuters.Gazprom is looking at whether it wants to invest in a 66 million litas shareissue of the Lithuanian gas transporter which would give it a 15 percentstake in the utility, Chepukonis added.Lithuanian Gas, a 90-percent state-owned company with share capital of 372million litas, has already had talks with a consortium of Germany's Ruhrgasand Preussen Elektra, Gaz de France and Lithuanian-Russian Stella Vitae.Ruhrgas already cooperates with Gazprom as the two own stakes in the gascompanies of neighbour Baltic states Estonia and Latvia.

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Chepukonis said that the Gazprom officials would leave on Friday and that adecision may be expected in late May or early June.Lithuanian Gas earlier held a tender for the issue that flopped becausebidders failed to provide gas supply guarantees.The government then authorised the firm to carry out direct negotiationswith potential investors."34 "10 Mar 1998 RURHGAS EYES LITHUANIA, WANTS GAZPROM INVOLVED: REUTER ECONOMIC NEWS Reuter Textline (Q2:35)

VILNIUSGerman Ruhrgas is eyeing investment in Lithuania's gas sector, but does notwant a controlling stake, and would prefer Russian Gazprom to be involved,newspapers quoted the company on Tuesday as saying.Gazprom is still the major gas supplier for all three Baltic states althoughthe three have looked for alternative sources.'Ruhrgas is not aiming for a controlling share portfolio in the gascompanies of the Baltic countries,' deputy chairman of Ruhrgas, BurckhardBergmann, told daily newspaper Lietuvos rytas.'The philosophy of our participation in the Baltic countries is that Gazpromshould participate in parallel,' he added.Ruhrgas already owns small stakes in Estonia's and Latvia's gas firms buthas not yet gained a piece of Lithuania's, which is still 90-percentcontrolled by the state.The Lithuanian government has okayed direct negotiations with investors inprivatising 15 percent of Lithuanian Gas after an earlier tender failed.The first effort flopped as bidders for the firm's new 66 million litasshare issue failed to give gas supply guarantees.Lithuanian Gas has earlier said that Ruhrgas and Preussen Elektra wereprepared to pay the government-set price of 1.65 litas a share in the issue.Bergmann also told the newspaper that he thought 1.65 litas per share wasappropriate.Other bidders include Gaz de France and Lithuania-Russian venture StellaVitae, Lithuanian Gas has said.Rurhgas owns 15.06 percent of Estonian Gas while Gazprom owns 30.64 percent.The German company, in consortium with Preussen, also has a 16.25 percentstake in Latvian Gas, the samee size share slice as Gazprom"35 "20 May 1998 INTERVIEW-BULGARIA TO PRIVATISE ENERGY SECTOR: REUTER NEWS

SERVICE - EASTERN EUROPE Reuter Textline (Q2:37) By LILIANA SEMERDJIEVA SOFIA Bulgaria will restructure and gradually privatise its state-controlledenergy sector, Energy Committee chairman Ivan Shilyashki told Reuters onWednesday.'A new strategy for the energy sector until 2010 is expected to beconsidered by the cabinet next week,' Shilyashki said in an interview.He said power plants slated for privatisation would undergo scrutiny first.Sell-offs will start this year with 22 small hydro-power stations followed

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by generating units such as the thermal power plant in the Danube port ofRousse and the mining complexes of Marbas and Bobov Dol.Units which are not producing power will be separated from the rest of theplants and the transmission system to prepare them for restructuring throughmarket mechanisms, Shilyashki said. This will be done by the end of nextyear under the National Electricity Company (NEC).Big power plants, including the Kozloduy nuclear refinery and the Chairapumped storage plant, will remain in state hands.When bigger units go on sale priority would be given to bids frommunicipalities.'The strategy focuses on a model of a single buyer of energy which will bethe NEC but it will not be as big as it is now,' Shilyashki said. 'We thinkthis will be the most appropriate model for the country in a period oftransition,' he added.The Bulgarian natural gas monopolist Bulgargas which supplies anddistributes gas in the country, would be sold only when gas supplies arediversified, Shilyashki said.Russia is now Bulgaria's only gas supplier.'When we have other gas suppliers then we can think of selling Bulgargasshares at a stock exchange,' he said.Apart from a step-by-step privatisation, the main goals of the energy sectorreform include protection of Bulgaria's energy independence, meetingdomestic power needs with a priority to boost coal output and energyefficiency.Shilyashki said the committee had also prepared a law on energy which woulddefine restructuring and reflect Bulgaria's efforts to join the EuropeanUnion."36 "29 Apr 1998 BULGARIA TO PRIVATISE ITS GAS FIRM AFTER 2001: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:23)

SOFIABulgaria plans to sell stakes of its Bulgargas gas monopolist after 2001 toadjust the company to a liberalised energy market and attract investments,the chief of the Bulgarian Energy Committe said on Wednesday.Ivan Shilyashki told an international conference on the liberalisation ofthe Bulgarian energy market that the state will keep the controlling packageof shares.'After 2001 we envisage the beginning of the privatisation of the nationalgas company through sales of shares on a stock exchange or to strategicpartners,' Shilyashki said.Bulgargas' privatisation would help the company adapt rapidly to the newrequirements of a liberalised gas market in the country and implementforeign technical and technological experience, he added.Bulgargas is the owner and operator of the country's gas system and a2,200-km pipeline network, which includs 625 km of transit pipelines,receiving and transmitting gas from outside the country.

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The company also owns the country's Chiren gas storage facility in northernBulgaria and is currently working on its expansion from its current onebillion cubic metres to more than two billion."37 "25 Feb 1998 RUSSIA WANTS UKRAINE TO PAY GAS DEBT WITH EQUITY: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:65)

By ROSTISLAV KHOTIN KIEVRussia, owed over a billion dollars by Ukraine for supplies of natural gas,is eyeing stakes in some of the former Soviet republic's plum enterprises asa way of recovering part of the debt.A Ukrainian delegation due in Moscow on March 5 is expected to haggle overthe Dollars 1.2 billion in debt owed for gas deliveries last year and forthe period 1991-1994.Russian officials on Tuesday suggested one way out for Ukraine was to giveup equity in its run down energy business.In remarks addressed to Ukraine, Russian first deputy prime minister BorisNemtsov told an energy meeting in Moscow: 'If you can't give us cash, thengive us equity.'Ukraine is the largest consumer and conveyor of Russian gas. It consumes52-53 bcm of Russian gas annually and transports about 120 bcm to the Westvia pipelines across its territory.Russian Prime Minister Viktor Chernomyrdin discussed the debt problem withUkraine's leadership last week in Kiev but there was no conclusiveagreement.Pressure is growing on Ukraine to pay debts and to increase its cashpayments. So far the lion's share of repayments has been made inUkrainian-produced steel pipes, energy equipment, chemicals and agricultureproducts.Nemtsov said on Tuesday Moscow was losing patience with Ukraine overnon-payments for gas.'If you won't pay, you won't be supplied,' Nemtsov said during a meetingwith energy officials in Moscow on Tuesday. 'It should be established onceand forever. If there's no money, give up your property,' he said.Russian Deputy Prime Minister Yakov Urinson said in Kiev on Tuesday thatRussia would participate widely in the privatisation of Ukraine's energybusinesses.Alla Yeremenko, energy commentator at the weekly Zerkalo Nedely newspaper,said Russian energy businesses already have claims on six of Ukraine's oilrefineries, on underground gas storage, pipelines and steel mills.Reformist parliamentary deputy Serhiy Terekhin warned: 'There's a threat toUkraine's national security if our economy's diamonds are handed to theKremlin's New Russians (businessmen).'But Ukraine has little option except to take Russian gas.On Tuesday, Latvian Prime Minister Guntars Krasts said during a visit toKiev that Ukraine could buy North Sea gas from Norway.

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'Ukraine and Latvia are in the same position,' Krasts told Interfax newsagency. 'Gazprom as the sole gas supplier to the Baltic states can never befully reliable.'He added that a feasibility study on the construction and finance of apipeline from Scandinavia to the Baltic states and Poland, with a possibleextension to Ukraine, would be completed in two years.'The Norwegian option is a possibility - perhaps through a deal with Germanywhich imports gas from Norway,' Volodymyr Maxymiv, a senior official at thestate-owned Ukrgazprom company, told Reuters.On Tuesday, the Central Asian state of Turkmenistan and Anglo-Dutch oilgiant Royal Dutch/Shell signed a memorandum of understanding to build aDollars 4 billion gas pipeline to Turkey and on to Europe via Iran.Last month Turkmen leader Saparmurat Niyazov told Ukrainian President LeonidKuchma that Kiev could buy gas from Turkmenistan via this pipeline -especially when the issue of transit via Russia remains unresolved.'The southern route is quite realistic for Ukraine to get Turkmen gas but itstill too far in the future,' said Yeremenko.'But Ukraine needs alternatives, especially due to the need to survivepolitically during the next two years,' she added, referring toparliamentary elections in March and presidential elections next year.Kiev and Ashgabad signed a deal on annual supplies of 20 bcm fromTurkmenistan, but Russian gas monopoly Gazprom continues to block itstransit through the shortest route, offering one of double the length.Kuchma, perhaps trying to paper over Ukraine's wish to have at least two gassources, said during a meeting with Chernomyrdin that Kiev wanted to importTurkmen gas because Gazprom did not have enough gas to satisfy all itsdemands.Chernomyrdin responded by saying: 'If Ukraine needs gas, we in Russia willalways find it. Russia is provided with these resources for the next hundredyears'"38 " Although Hungarian experts mostly say that the regulation of the Hungarian energy sector is in comformity with the European Union regulatory framework, they caution against opening up the market before it is ready for the liberalisation that has already started in the EU. Therefore, there may be a potential conflict of interests in this issue at the accession talks that are to begin in the spring.The electrical energy directive of the EU, which took effect in February 1997, emphasizes four elements, the creation of a competitive market, the safety of supply, the fulfillment of environmental requirements and the improvement of efficiency. Experts say that the fact that since 1995 the Hungarian electrical energy system has been operating in a parallel trial run with UCPTE, and this spring is expected to join the Western European system formally as well, means that the Hungarian electrical energy sector has been integrated into the EU in the 'physical sense'.The Hungarian electricity generation industry model and its regulation is in many respects similar to, or is mostly in accordance with the relevant European Union directives, said Antal Tombor, chief executive of the electricity supplier Magyar Villamos Muvek (MVM)Rt. There are some significant differences, which will require a modification of the energy act and related

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orders and regulations. The monopoly of MVM as supplier needs to be reregulated and some big users should be allowed to choose their electricity utility, power plant or source of imports themselves. A decision has to be made whether to allow anybody to build a power plant or whether MVM should retain its right to invite tenders for the construction of new capacities. Changes need to be made in the regulations governing the free access to power lines and the practice of long-term electricity purchase agreements.The most sensitive issue concerning integration will be the pace of market liberalisation. The EU member states will partially open their markets to electricity utilities of other EU states in 1999, and the liberalisation will become complete in 2005. Some experts predict that the Hungarian market may be opened up in 2007 at the earliest.The main harmonisation tasks Hungary has to fulfil with respect to the gas industry are to make Hungarian-produced natural gas accessible for international transit purposes, to modernise the pricing and information system, and to bring the exploration and extraction of gas in line with the European Union standards. The liberalisation of natural gas market and supply is a much debated issue in the EU as well, points out Balazs Orosz, leading legal adviser of the oil and gas company Mol Rt. The main question is to what extent the gas supply can be freed up." 5 feb 1998 Figyelo39 10**06 Jun 1998 Business: The balance of power: Independent power producers think they have found a way to cope with the risks of their business. They may be disappointed: The Economist FT McCarthy (Q1:133)

WHEN a child leaves home, everyone sheds a tear-and heaves a sigh of relief.So it was with GEC Alsthom, the energy and transport business created by Britain's GEC and France's Alcatel Alsthom in 1989. On June 2nd the joint venture put itself forward for Europe's largest-ever private-sector stockmarket listing, and changed its name-though, perhaps because of family loyalty, not too much-to Alstom (sic). Its parents now have more time for their own projects (defence for GEC, telecoms for Alcatel). And Alstom can concentrate on transport, including France's TGV trains, power and energy services, without having to answer to its folks, a constant irritation before it reached its majority. GEC and Alcatel will have equal stakes, up to a combined 48%. Otherwise, Alstom is on its own.This increased independence is crucial if Alstom is to be agile enough to realise its dream of displacing ABB, a Swiss-Swedish engineering giant, as the world's chief supplier of energy-distribution equipment. Alstom is already the world's most profitable firm in this field and is improving its performance in power generation. Even so, it has a struggle ahead. Although Alstom has promise, the independent power industry is a minefield.Like most power companies, Alstom has a soft spot for big projects. Its promotional literature boasts of the turbines it is supplying for China's Three Gorges dam, and a 700MW power station that is the largest build-operate-transfer plant in the country. So it is interesting that Alstom is particularly seeking projects of less than 150MW (enough to supply about 150,000 people). The reason is diversification, says Nick Salmon, president of Alstom's energy division. 'With a large number of small projects,' he says, 'there is less risk than with a single large contract.' Similarly, Alstom wants to expand its power-related services, such as maintenance, refurbishment and spare-parts supply, while decreasing the emphasis on making components.Diversity has become a buzzword among independent power producers (IPPs), because selling power is a risky business. Hubco, for example, a joint venture dominated by Saudi Arabia's Xenel and Britain's National Power, is reeling from the possibility that it might have to cut its

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charges by more than half for a power station outside Karachi-even though the government signed a contract agreeing to the higher rate in 1995. The company's concerns became all the more acute towards the end of last month, when Pakistani police placed dozens of expatriate employees under house arrest for 36 hours.Only a few years ago the case for private power seemed irresistible. Few poor countries had satisfied their power-hungry people; and many rich ones were questioning whether their power monopolies still made sense. Annual demand for electric power was projected to increase as much as five times by 2050.In the early 1980s, independent power made inroads in America and Britain.The first large investments outside the OECD date from the early 1990s, when the Philippines, whose 12-hour brownouts were notorious, called on IPPs out of sheer desperation. Other power-hungry countries, particularly in Asia and Latin America, followed suit. In those days, 'everyone felt there was money to be printed,' recalls Andrea Bonime-Blanc of Community Energy Alternatives (CEA), one of the 300 IPPs drawn to the business. 'Reality has struck us-a couple of times.' The shock of the new One surprise was that the need for power did not always create a market for it. Grumpy governments sought to prevent companies from making too much profit. China, for example, used to limit returns on investment to 13% (now 16%). As the chief executive of one western company puts it, 'I can get that in Belgium. Why should I take the risk in a place like China?' National pride also got in the way. India, perhaps, is the most egregious example. Less than 1,000MW in private power has been finished since the market was supposedly opened to IPPs in 1992, even though the government estimates it needs to add more than 110,000MW of generating capacity (twice what Britain has now) to meet demand by 2010. The country's supply is inadequate and unreliable: Indian voters chose a power station as their venue when they wanted to protest against the government's spending on nuclear weapons.The first project in Saudi Arabia stalled amid doubts about the wisdom of privatisation-not only on nationalist grounds, but also because privatisation could eventually lead to the end of popular electricity subsidies. Mexico has been building the legal framework for private power since the early 1990s, but remains skittish about the idea and signed its first project only last year. Turkey knows it needs power but is suspicious of foreigners Despite such attitudes, private power continues to gain ground . At the end of 1997, 140 plants were under construction, according to the Independent Private Power Quarterly, a newsletter, compared with 211 in operation; another 486 were under development. Regulation remains the industry's chief complaint, but (Pakistan aside) it is improving in most places.Yet, when all the regulatory problems are settled, IPPs still find it hard to make money. Latin America as a whole has successfully opened its power markets, with Chile and Argentina in the vanguard. Investors are so confident that they are already pouring into Brazil, though the legislation governing the power sector is still being drafted. But even in a deregulated market it is still possible to lose money, because governments will no longer guarantee to buy a specified amount of power. Instead consumers buy on a short-term or spot basis, and lower-cost suppliers can drive rivals out of business. That keeps profit margins thin. Carlos Yermoli, of Hagler Bailly, an American consultancy, estimates that the return on investment in Argentina is not much more than that on money in an Argentine savings account.The alternatives are unattractive: where political risk is high, as in Pakistan, market risk is low; where it is low, as in Argentina, market risk is high. Hence the stampede to hedge risks by diversifying-through acquisitions, such as Siemens's purchase of Westinghouse's power

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division; through overseas expansion, such as Atlanta-based Southern Company's acquisition of Hong Kong's Consolidated Electric Power Asia; and by buying different bits of the energy chain, such as Mission Energy's purchase of a share of the coal mine that will feed its Indonesian plants.Diversification makes evident sense. But it has two drawbacks. The first is that it is expensive-too expensive for many firms. And the second is that everyone has decided to diversify at once, which may lead to more bidders, and lower profits, for each project. One way or another, there are bound to be casualties. There will be a place for niche firms, particularly in the small-scale generation market. But, as the newly independent Alstom may discover, there is too little business to keep the current flowing through 300 firms.

40 " RWE, the Essen-based electricity and industrial conglomerate, said yesterday it was planning to expand its telecommunications activities into eastern Europe, where it has significant energy interests. The group said it was looking for partners to join it in a fixed network telecoms venture in Hungary. RWE also has a 40 per cent share in Aliatel, a joint telecoms venture in the Czech Republic. The group said it was looking initially to build data and corporate networks, but wanted eventually to take advantage of telecoms liberalisation in the two countries." 31 Mar 1998 FT41 "19 Mar 1998 GAS GIANT WIELDS HUGE CLOUT IN RUSSIA'S BACKYARD: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:59)

By PeTeR HendeRSon MOSCOWWhile Russia pursues conventional diplomacy in the Middle East or theBalkans, its biggest gas company wields massive foreign policy clout inMoscow's former communist backyard.Most countries of the former Eastern bloc need gas from Gazprom - or rely onthe company's pipelines to ship their own output.With a quarter of the world's natural gas reserves, market capitalisationestimated at Dollars 50 billion and control of the pipelines linking its

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Soviet-era neighbours, Gazprom is far from an ordinary company.The gas giant has threatened to penalise countries that owe it money -including Ukraine, with arrears of Dollars 1.2 billion, and Belarus.Bulgaria is negotiating a new contract for supplies and tiny Moldova agreedthis week to work out a plan to transfer Dollars 50-Dollars 70 million worthof shares in its companies to Gazprom in settlement of debts.Moldova handed over half its gas transport network to Gazprom last month tosettle Dollars 47 million in debts.While Russia's global power has declined considerably since communismcollapsed and the Cold War ended, Gazprom is well placed to exercise a newtype of influence under capitalist economics.'They laid down tough conditions,' Moldovan Prime Minister Ion Ciubuc told anews conference on Thursday, referring to negotiations with Gazprom. He saidMoldova would hand over the shares only as a last resort.But with about Dollars 200 million in annual gas costs and a Dollars 549million debt, according to a Moldova-Gazprom protocol signed on Tuesday,Moldova has few alternatives.Ukraine has found an eager gas supplier in another former Soviet republic,Turkmenistan, but the Central Asian state has been unable to ship naturalgas to international markets for a year since failing to agree on pipelinetariffs with Gazprom.The impasse remains unresolved despite declarations by Moscow that relationswith Turkmenistan are strong.Gazprom head Rem Vyakhirev has maintained a tough line which has led some toaccuse the company of Soviet-style imperialism.'In talks with ..Rem Vyakhirev, I felt the smell of old Soviet ambitions,'Turkmenistan President Saparmurat Niyazov said last August during a visit toMoscow.Russian President Boris Yeltsin said in his state of the nation address thisyear that improving relations with former Soviet republics in theCommonwealth of Independent States was a top priority.Much of that will be accomplished through diplomacy, but Gazprom's efforts,if coordinated with the government, offer Russia an economic stick as wellas diplomatic carrots to secure its role.Stephen O'Sullivan, director of oil and gas at MC Securities in London, saidGazprom was well placed to play the tough cop on behalf of the government.Gazprom and the government had surely agreed on policy ahead of talks withTurkmenistan and other neighbours, he said.'Gazprom getting hold of gas assets is extending Russian control intolittoral states,' he said.The state and Gazprom already have a close relationship, with Gazpromsecuring special treatment from the government and the treasury looking forhelp from the company, which pays a staggering 25 percent of all federaltaxes.Moscow owns 40 percent of the gas giant, while foreign share holdings arecapped at nine percent. Russian Prime Minister Viktor Chernomyrdin once

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headed Gazprom.And the rich company is sure to wield important influence in parliamentaryelections next year and a presidential poll in 2000.'It would be unrealistic to believe Gazprom and the government do not havediscussions on broader policy questions,' O'Sullivan said.(C) Reuters Limited 1998."42 " Gazprom's alliance with Royal Dutch Shell - which will be cemented by Shell's agreement to buy a convertible bond leading to a 3% equity stake - may lead to several international projects. More recently, Italy's state energy company, ENI, signed an agreement worth Dollars 3bn which will also include an equitystake in Gazprom in the coming months.But Gazprom itself has already become an international company of sorts.Through a series of debt-for-equity swaps with its clients in the CIS, ithas built significant assets overseas. In some countries Gazprom is thelargest creditor ahead of international institutions such as the IMF. InMoldova, for example, Gazprom will soon be the main shareholder, ahead ofthe government, in the country's main distribution and pipeline company,Moldova Gas.Although Gazprom is still renowned for its shambolic old-school management,reformers in the government have been fighting to restructure a companywhere a quarter of its 400,000 employees work in farms, banks, airlines,sanatoriums and other activities of no value to the company's core business.And Gazprom is struggling to finance its most pressing project, a pipelinefrom the Arctic Yamal peninsula to Germany. This has an estimated cost ofDollars 25bn, with drilling costs of a further Dollars 15bn. The companyrecently announced plans to scale back the project as a result of the highcosts. The strategic alliance with Royal Dutch Shell will bring easieraccess to finance and at the same time will help Gazprom build its oilbusiness. But analysts say that Gazprom has little to gain from competinghead to head with multinationals outside Russia. This sprawling domesticmonopoly has a stranglehold of over 90% of all Russian gas production.For foreign partnerships to take off, much progress has to be made both onthe legislation governing production-sharing agreements and the uncertaintax regime. 'If foreign oil companies don't get PSAS (production-sharingagreements) in the next few years, they will walk away,' says BrunswickWarburg oil analyst Tom Gochenour. So far, Russia's parliament has passedonly a handful of the 230 agreements on production sharing and it has yet toamend a dozen or so laws which conflict with the idea of production sharing.'Even less politically stable countries like Nigeria have managed tonegotiate viable agreements on production,' says Adshead at United FinancialGroup." Euromoney 23 Apr 199843 "21 Feb 1998 GREECE SLOWLY SWITCHES TO NATURAL GAS (GRIECHENLAND STELLT LANGSAM AUF ERDGAS UM ): FRANKFURTER ALLGEMEINE ZEITUNG FT McCarthy (Q1:31) In early 1998, Greece's state-owned gas utility Depa started providinghouseholds in Athens with Russian gas. The thermal power plant Keratsininear Piraeus, and a number of factories, too, have in the meantime begun to

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use Russian gas as a source of power. These developments are the first phaseof partial switch from oil to gas in Greece. The Russian gas comes intoGreece via Bulgaria in a 511 km pipeline. From April the 560 MW Lavrionpower plant will also be running on Russian gas, while distribution gridswill be built in the Thessaloniki, Thessalia (Volos) and Athens regions. TheGreek energy ministry is confident that Greece will fulfil its contractualobligations with Russia from 1999. In 1988, Greece had agreed to receive 2.4billion m annually of Russian gas from 1993. Greece only started usingRussian gas in 1997 , and in 1994 - in order to escape a breach of contractpenalty - proposed to Gazprom building and operating jointly a coal burningpower plant in Florina. Gazprom has reacted by threatening dire consequencesshould Greece undermine the 1988 agreement. The Bulgarian government, on theother hand, accuses Gazprom of having failed to build a pipeline forsupplying Greece on Bulgarian soil. Gazprom counters that it is payingBulgaria in kind (with gas) for the use of the existing pipeline."44 " Foreign investment in the gas industry has been rare in view of Gazprom's monopoly. To strengthen its position as Russia's foremost exporter of natural gas to Western Europe, Gazprom, together with western gas companies, is investing heavily in the expansion of the pipeline system. Gazprom wantsto reduce its dependence on certain pipelines. The Yamal pipeline fromRussia through Belarus and Poland to Germany (investment volume: almostUSDollars 40bn) will bypass Ukraine. Most of the other Russian pipelines toWestern Europe run through Ukraine. A part of this pipeline will be financedby an international consortium led by Dresdner Bank (USDollars 4.7bn).Another pipeline is to be built from Russia through Finland to Sweden andGermany. Last August, Gazprom signed an agreement with Turkey involving theconstruction of a new pipeline through the Black Sea to Samsun (USDollars3.3bn). In addition, a consortium consisting of Mongolia, South Korea, Chinaand Japan is to build a pipeline to carry Siberian gas to these countries(investment volume: USDollars 10bn)." Dresdner Bank Trends Feb 199845 "05 Mar 1998 Weekly Economic Report: Greek-Russian Gas Venture Plans to Bring Russian Gas to Albania: BBC Summary of World Broadcasts (Q1:22)

Source: 'Gazeta Shqiptare', Tirana, in Albanian 26 Feb 98Excerpts from report by the Albanian newspaper 'Gazeta Shqiptare' on 26thFebruaryA Greek-Russian firm called Prometheus has proposed a plan to connectAlbania to the international gas network via Greece.According to the study, the 260-kilometre main pipe will carry gas fromTrikala (centre Greece) to Korce (northeastern Albania) and then to Fier(northwestern Albania). The pipeline's construction will require aninvestment of 200m dollars.The plan, that Prometheus has prepared as part of the Intereg programme,aims to bring gas to the Balkans from underground deposits in Russia.Besides Albania, the western part of the Greek province of Macedonia will be

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included in this plan .. The realization of the projects will require theconstruction of two new thermal power stations at Ptolemaida (northern)Greece and in Korce .. The construction of a thermal power station in Korcewould be followed by an extension of gas mains to industrial areas on theAlbanian territory. It is expected that the network will be extended toElbasan (northern Albania), Fier, Durres and Tirana .."46 "01 Dec 1997 BOSNIA & CROATIA IN POWER ROW AS EBRD APPROVES FUNDS: East European Energy Report FT Bus Rep: Energy (Q3:86)

The Croatian and Bosnian power utilities have been in dispute overelectricity exports from Bosnia to Croatia. According to Bosnian dailyDnevni Avaz, the Croatian power company Hrvatska Elektroprivreda (HEP) isnot fulfiling its commitments, which stem from a deal concerning electricityexports signed in July 1997.In 1972 and 1974, Croatia invested in the construction of the Tuzla andKakanj thermal stations (located in Bosnia & Herzegovina) and thus has theright to import some of the power generated at the two plants. This rightwill be valid, in the case of Tuzla, for another two years (250 GWh ofelectricity), while Kakanj is due to export some 3,000 GWh in the next 11years.The problem arose when, according to Bosnian sources, the Croatian siderefused to continue importing Bosnian electricity. Izudin Kapetanovic, theBosnian minister of energy, mining and industry wrote to Zlatko Matesa, theCroatian PM, inquiring why Croatia is importing electricity from otherneighbouring countries but avoiding Tuzla and Kakanj.HEP sources confirm that management informed Prime Minister Matesa of thefacts concerning this impasse. Davor Kucic, advisor to the president ofHEP's executive board, adamantly denies the Bosnian charges. Kucic rejectsclaims that HEP is not respecting existing agreements on electricity importswith their Bosnian counterparts as completely unfounded.HEP officials explain that the disruption of electricity imports originatingfrom the two Bosnian stations is related to a request for a temporarypostponement of deliveries, which came to HEP from EP BIH on 22 Octoberlast. HEP representatives say that the request was sent after a power crisisin Bosnia, which was caused by a malfunction at a 200 MW station block."When EP BIH stabilised the power situation in Bosnia & Herzegovina, we werenot able to immediately resume the collaboration because of severaloutstanding commitments that we had with neighbouring countries," saysKucic. "We are now however ready to continue our cooperation" he said.A special working group will be formed on the HEP side which will beresponsible for sorting out the legal framework related to the agreementwith EP BIH. The Croat side is unhappy with its current status, because itis unable to influence the price of the electricity that is being importedfrom the two plants. The price of electricity generated at Kakanj isdetermined in accordance with the EP BIH tariff system, while the Tuzlaprice was previously determined in the joint agreement. The two sides are in

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talks about revitalising the grid and the distribution system between thetwo countries.EBRD funds grantedMeanwhile, the European Bank for Reconstruction and Development (EBRD)approved a DM27.5m credit for Bosnia & Herzegovina and Republika Srpska latelast month to be used for repairing power stations, the grid anddistribution systems. Part of the funds will also be used for improving theexisting EP BIH accounting system and for the introduction of new industrystandards. The official EBRD communique expresses hope that this new creditwill help foster the cooperation between the power sectors of the twoBosnian entities. The loan is part of an international effort, coordinatedby the EBRD, to channel emergency funds into the power system."The restoration of electricity will enable displaced people to return tohomes and businesses. It will also allow major industrial facilities torestart, bringing employment to a vast number of people," said Jacques deLarosire, President of the EBRD, at the signing in Sarajevo. "An additionalbenefit will be the introduction of modern accounting systems to helpstrengthen the utilities' financial management and overall performance" headded.Significant local participation will be required to implement the project,creating direct employment opportunities. The project is expected to promoteexchanges of power supply between the utilities and foster cooperation andcoordination between the Federation and the Republika Srpska.The EBRD has been involved in the reconstruction of Bosnia and Herzegovinasince early 1995. In particular, the EBRD was designated by theinternational community to coordinate the international effort toreconstruct the power sector. In fulfiling this role the Bank has taken aleading position in preparing projects and coordinating funding. Thisparticular project includes 16 other sources of funds, mostly grants andconcessionary loans, totalling Ecu142m."47 "04 Jun 1998 Weekly Economic Report: Bulgaria to Export Electricity Worth 150m Dollars to Turkey: BBC Summary of World Broadcasts (Q1:20)

Source: BTA news agency, Sofia, in English 1508 gmt 1 Jun 98Text of report by the Bulgarian news agency BTASofia, 1st June: Bulgaria will export to Turkey electricity worth 150mdollars. Turkey will pay the greater part of this sum by investment inconstruction in Bulgaria, Deputy Prime Minister Evgeniy Bakurdzhiev toldjournalists on Monday (1st June). Bakurdzhiev visited Turkey last week totake part in an international conference. He also met with Turkish EnergyMinister Cumhur Ersumer.A memorandum on the export of Bulgarian electricity to Turkey is expected tobe signed during the official visit of the Turkish energy minister, who isto arrive in Sofia on 17th June. The document will fix the amount of energyand the ways it will be paid for, the Bulgarian deputy prime minister said.

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The first agreements will probably be four-year ones. They will be reviewedbetween the years 2000-2002. These provisions will underlie the futureBulgarian-Turkish memorandum."48 "25 May 1998 ITALY OFFERS TO TAKE ROMANIAN NUCLEAR POWER: REUTER NEWS SERVICE - CANADA Reuter Textline (Q2:60)

By RaNdaLL PaLMeR OTTAWAItaly has offered to buy electricity from Romania to help the easternEuropean country get a second nuclear reactor up and running, RomanianPresident Emil Constantinescu said during a visit to Canada on Monday.'New things have come up - one is very new, the Italian offer of buyingelectricity from the new unit,' Constantinescu told reporters afterdiscussing the issue with Canadian Prime Minister Jean Chretien.The Canadian-designed plant is already 40 percent built, but the Romaniangovernment is trying to find financing for the remaining Dollars 750 millionit says it needs to complete work on a second reactor.Romania would not need all the power the plant would provide and Chretien,who has just returned from a tour of Europe, said he had talked with ItalianPrime Minister Romano Prodi about the problem of Romania having surpluselectricity.Italy has a direct interest in the arrangement as the country's Ansaldo SpA- a division of Finmeccanica SpA - is a partner in a Candu nuclear reactorproject with Atomic Energy of Canada Limited (AECL).Already Dollars 650 million has been spent on the Romanian reactor at theCernavoda site on the Danube River, where former Communist dictator NicolaeCeausescu embarked on plans for five reactors before his overthrow in 1989.In addition to the idea of selling power to Italy, Constantinescu andChretien had preliminary discussions about exporting electricity tocountries like Bulgaria and Ukraine, which is looking for new power sourcesdue to the Chernobyl nuclear disaster.Constantinescu said the idea of selling electricity elsewhere was feasiblebecause there was already a power grid with western Europe and with centraland southeastern Europe.'The new possibilities are very promising for this,' he said. 'The onlyimpediment for Romania is that of the financial arrangements,'Constantinescu said through an interpreter.Chretien said Canada was looking into Romania's requests for betterfinancing terms for a reactor.The president of Canada's Export Development Corporation, Ian Gillespie,said he expected no financing agreement to be signed during Constantinescu'scurrent six-day visit to Canada. One of Romania's requests was not to berequired to give a 100-percent government guarantee for any loan. He saidRomania also wanted longer maturities on loan financing.Chretien said one problem that had emerged at the recent Birmingham summitof the Group of Eight leading industrialised nations was that the European

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Bank for Reconstruction and Development has a regulating forbidding it fromfinancing nuclear plants.'People (at the summit) were surprised, because they face major problems ineastern Europe, and it's one of the difficulties when we discussedChernobyl, for example, in how to finance a replacement,' he said.But he added that the summit leaders were willing to raise the issue andgive instructions to their representatives on the bank's board. 'So thatmight be a new source of financing available,' he said.Asked if recent nuclear tests by India - to which Canada had sold nucleartechnology in the 1970s - had made him reconsider Canada's nuclear exportpolicy, Chretien noted that Romania unlike India had committed itself to theNuclear Non-Proliferation Treaty.He also reiterated Canada's support for Romania, as well as Slovenia,joining the North Atlantic Treaty Organisation (NATO) in the nextenlargement.'When there will be an expansion - and there should be an expansion -Romania should be the first one,' he said."49 "20 May 1998 EU/BALKANS COMMISSION WEIGHS UP PROSPECTS FOR PERIPHERAL ELECTRICITY MARKET: Europe Energy Predicasts PROMT (Q1:67)

Summary: European Commissioner for Energy, Christos Papoutsis, presented onMay 18 a new study on the prospects for the development of a peripheralelectricity market in the Balkan region. The study presents proposals forthe establishment of a competitive electricity market in the region,including proposals for operating, development and electricity tradecriteria. Included in the proposals are criteria for an integrated expansionplanning in the region, while emphasis is placed on the proposed structureof the market. Mr Papoutsis expressed his satisfaction with the high qualityof the study and underlined the great potential of the Balkan region forenergy development, saying "in view of the conference held in Bucharest lastNovember, I think the development of the Balkan Energy market can contributeto peace and stability in the whole region of South-Eeastern Europe and theBlack Sea". The study contains a brief presentation of neighbouring areas inconnection to the electricity sector, the actual state of the political,institutional and socio-economic situation in the area, the synthesis of thefuture Regional Electricity Market (REM) and the EU Directive on theinternal electricity market. One chapter reviews similar systems and marketsin Europe, Southern Africa, Asia and America and the conditions forparticipation in the Union of Coordination, Production and TransportElectricity (UCPTE) of non-member Balkan countries. Another chapter looks atthe organisational structure of the electricity sector, the generatingsystems, the market consumption and the electric utility power exchanges andalso comments on the systems of Albania, Bulgaria, the Former YugoslavianRepublic of Macedonia (FYROM), Greece, Romania and the Federal Republic ofYugoslavia (FRY). Another chapter examines the expansion plans both ingeneration and transmission systems in the above-mentioned countries. The

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restrictions existing within a future REM are also examined in the study,including environmental restrictions and those of security of supply.Generation and transmission system analysis is used for each country inorder to examine the issues of generation reserve capacity and import/exportcapabilities, network reliability, stability and short-circuit-withstandprotection, defence and restoration. The study also looks at the problemsthat would need to be overcome for the development of such an electricitymarket. Specifically examining the existing infrastructure and the technicallimitations associated with the parallel and synchronous operation of thesix Balkan countries power systems and the UCPTE. Also examined were theexisting levels of economic results, transparency, the economic situation ofthe transmission pricing and obstacles to investment. The study'sconclusions strongly favour the creation of a REM, in line with the viewsexpressed at the Ministerial Conference of the Black Sea Regional EnergyCentre that took place in Bucharest on November 28, last year. A furtherstudy on the development of the Balkan Electricity Market should begin soon,financed by the Commission-coordinated PHARE programme of aid to Central andEast Europe. In addition, the Commission's SYNERGY programme will also belaunching a project entitled Energy Interconnections in South-easternEurope, with the objective of continuing the work of the Balkan EnergyInterconnection Task Force in promoting the interconnection of energynetworks in South Eastern Europe. In the context of common actions, a numberof interconnections have also been proposed by the countries themselves,aimed at enhancing the cooperation between their energy systems."50 "05 Mar 1998 KRAFTPROJECT FOR 8,3 MDR I BALTIC RING Russia: Investments of SKr8.3 bil in electricity prodn & transmission in Baltic States before 2002 proposed by Baltic Ring group: Dagens Industri Predicasts PROMT (Q1:23)

The project group for the Baltic Ring project, which aims at a commonelectricity market around the Baltic Sea, recommends investments totallingSEK 8.3bn (USD 1bn) in electricity production and transmission in theBaltic States before the year 2002. Lennart Lundberg, chairman of theBaltic Ring group and formerly deputy MD of Swedish Vattenfall, says banksare interested in participating in the project and that capital needs willbe met. International development and investment banks such as EBRD, NIBand EIB already participates in the project as consultants. Theinvestments would include a new combined power and heating station inKaliningrad (SEK 4.2bn), a direct current cable between Ignalina,Lithuania, and Grudzladz, Poland (SEK 3.0bn), and the modernisation of acombined power and heating plant in Riga, Latvia (SEK 1.1bn)."51 20 Feb 1998 BALTIC REGIONAL GRIDS MOVE CLOSER: International Gas Report FT Bus Rep: Energy (Q3:70)

The 11 leaders of the Council of Baltic Sea States have agreed to supportplans for gas and electricity grids circling the area. Finance and

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construction would be left to the private sector. Aims vary according to thestate concerned but, in general, the plan would allow some countries toreduce reliance on Russian energy, while Russia could benefit by gettingaccess to markets not currently available. North Sea supplies would be madeavailable to the region and the end result, it is surmised, would be greaterenergy security all round.It is unclear which of the two proposed grids would provide most benefit.Laying a gas transmission system to link the 11 nations would be costly,given the sizeable gaps between existing systems. However, offshore linesprovided with branches could solve that problem. More likely is theelectricity grid, given that all states on the northern shores of the Baltichave well-developed systems. The problem here is incompatibility. Denmark.Germany and Poland use the system common throughout western continentalEurope. The Baltic states use the Russian system, while the Nordic countrieshave a system all their own.This has long exercised the minds of Vattenfall, Sweden's largest electricutility, whose chief executive officer Carl-Erik Nyquist has for many yearsbeen the leading proponent of a Baltic Ring electricity grid. Existing linksbetween Sweden, Denmark, Norway and Germany use transformer stations toconvert AC to DC for transmission through subsea links. Similar links arenow well into the advanced planning stage between Sweden and Poland andbetween Poland and Lithuania. A Baltic Ring Study is due for completionsoon, the economics being probed by a group made up of Sweden's Vattenfall,Denmark's Sjallandske Kraftvarker, Germany's Preusser Electra and Finland'sImatran Voima.One of the main aims of the Baltic electric ring is to reduce the amount ofgenerating capacity each country requires to meet peak demand. Two timezones are involved, spreading the peak, while differing generating systemsmean surplus hydropower can be exported south just when demand is at itshighest. Given that gas-fired generation is spreading widely along thesouthern shores of the Baltic, it may well be that the gas grid need only bepartial. Russian and North Sea gas delivered through existing systems to thesouth of the region could be used for power generation, output then beingexported north through the electricity links.One of the aims of the Baltic Ring Study was to see how much coal-firedcapacity could be backed out. This would directly improve the environment.Given that backing out coal in favour of gas is also one of the main aims inplaces like Poland, eastern Germany and Estonia (where oil-shale is stillwidely used for power generation), the two projects are by no meansincompatible. The likely outcome would thus appear to be some sort ofcombined grid, with gas being supplied to provide environmentally-friendlypower generation and the electricity grid being used to distribute theenergy produced.In place of the old British concept of 'coal-by wire', the Baltic regioncould end up with 'gas-by-wire'. The one thing political leaders have notfirmed up is a timetable. But, given the impetus coming from industry and

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the utilities, initial steps could be taken in the very near future. Thefact that electricity links already exist between several of the 11 nationsinvolved means the skeleton is already largely in place. Now the flesh canbe built up."

52 "01 Feb 1998 BALTIC RING REPORT PRESENTED AS LITHUANIA ISSUES LINK TENDER: East European Energy Report FT Bus Rep: Energy (Q3:82)

Renovation of a 630-MW cogeneration plant in Riga and the construction of a1,000 MW production unit in Kaliningrad are numbered among the more concreterecommendations contained in strand one of the Baltic Ring project study.The study also recommends the construction of a transmission link betweenLithuania and Poland to integrate the Nordic and Baltic electricity gridsystems with the Continent. This month Lithuanian announced a tender for alink between itself and Western Europe with the aim of exporting 6 TWh/yr ofelectricity over the next 10 years.A link between Lithuania and Poland would facilitate the sale by Lithuaniaof electricity from the Ignalina nuclear power plant to the Continent. "Thislink would cost in the region of #224m, and form part of an overall plan tomodernise certain power plant, national grid systems and to open upelectricity markets in Poland, the Baltic countries and Belarus" said theBaltic Ring's project manager Kari Sinivuori. However, some of the membersof the project have expressed concern over safety at Ignalina and are unsureof the reaction among Western consumers to power supplies from such a plant.The next phase of the Baltic Ring's work will concentrate on creatingimport-export license mechanisms for third party bilateral electricitytrading. An energy bill currently under consideration in Estonia makesprovision for such licenses. "Eventually we would like to see a spot market,such as Nord Pool, emerge to cover the region" said Sinivuori.Although the study considered building a subsea transmission cable betweenTallinn and Helsinki, the report concluded such a cable would not be costefficient, since electricity can already be delivered via Russia to Finland.Given the existing capacity available in countries such as Estonia andLithuania, the study emphasises renovation of existing plants rather thanbuilding new units, with the Kaliningrad project being an exception.Critics of the Baltic Ring initiative say linking the various electricitysystems in the region will only prolong the operation of dangerous andenvironmentally unsound plants. This is view rejected by Sinivuori."Investment in renovation can only help in making these power plants saferand more environmentally friendly. High standards will be set before powerplants and countries can participate in electricity trading" said Sinivuori.In strand two of the Baltic Ring initiative, project officials will examineways of decreasing greenhouse gas emissions in the Baltic region.The Baltic Ring project aims to connect all the countries around the Balticrim area in to a central exchange for the trading and distribution ofelectricity generated by state and private power companies in Sweden,

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Denmark, Finland, Poland, Germany, Estonia, Russia, Latvia, Lithuania,Norway and Belarus."53 "12 May 1998 Latvia: Ventspils Session Discusses Energy Cooperation: BBC Summary of World Broadcasts (Q1:30)

Source: Latvian Radio, Riga, in Latvian 1300 gmt 8 May 98Excerpts from report by Latvian radio on 8th May(Presenter) The 12th session of the Baltic Assembly began in Ventspils(Latvia) today. The participants are discussing the possibility of creatinga unified power grid. Cooperation in power engineering between Estonia,Latvia and Lithuania is not a closed process, but part of a wider strategy,the aim of which is convergence with Europe, Latvian Economics MinisterLaimonis Strujevics told the session ..(Correspondent) The ministries responsible for power engineering in thethree Baltic countries understand that successful collaboration between thethree participants in the state energy sector can only be achieved byinvolving various organizations, such as national and international powercompanies, nonstate organizations, associations, societies, and alsoconsumers. Joining the European Union will require progressive unificationand harmonization of national legislation with European Union legislation.It is proposed that the efforts of the three Baltic countries be pooled toadapt to European Union directives, especially in relation to electricityand gas, norms and standards. Strujevics pointed out the need to providefinancial resources in each country's national budget to promote Balticcooperation in the power-engineering sector ..(Environment Minister) Indulis Emsis pointed out that the power-engineeringissue was one of the basic questions in cooperation, because in Estoniaelectricity is produced from shale oil, in Latvia it is generated byhydroelectric stations and in Lithuania by a nuclear power station. Only byunifying all this can we acquire a secure and independent electricity system"54 "07 May 1998 Helsingin Energia hivuttautuu Itameren rantamaihin ESTONIA: HELSINGIN ENERGIA TO COOPERATE?: Tekniikka & Talous Globalbase (Q1:22)

The Finnish electricity company Helsingin Energia is conducting apreliminary survey on the feasibility of cooperating with an Estoniandistrict-heating company. A combined heat and power station is to be builtin Tallinn. The investment study is scheduled for completion in June 1998.The power station would produce 300 megawatts of heat and electricity. Itwill be fueled by coal or gas, depending on legislation or the marketsituation. Helsingin Energia would contribute its know-how to the project.Helsingin Energia is surveying the opportunities in the other formercommunist countries as well. The Swedish and German markets are consideredinteresting too."55 "Heikki Marttinen, CEO of Finland's Imatran Voima (IVO), argues that the competition about the municipally-owned electricity companies is reaching increasingly unhealthy proportions:

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the major power companies have been trying to gain a foothold in the regional electricity distribution companies at almost any cost. Marttinen warns that ultimately the consumers may be hurt. In many cases, the prices paid have been so high that the only way to make the investment pay back is to raise electricity rates. According to Marttinen, IVO gave up on the bidding competition on the Savo companies and a number of Swedish power utilities for the express reason that the prices bid were too high. Marttinen emphasizes that it is vital for Finland to preserve the fuel diversity in energy production. The plans must not be built on natural gas only - the nuclear power capacity must be boosted as well, he says. IVO is prepared to participate in the construction of a new nuclear-power plant valued at Fmk 10-12bn 1.9-2.2bn). The power station with a power capacity of some 1,000 MW should be completed around the year 2010." 01 Feb 1998. Turun Sanomat56 "Municipal utilities claim merger points way forward in liberalised market A marked improvement in market positions is what Kraftwerke Mainz-Wiesbaden (KMW), the municipal utility servicing the two neighbouring cities of Mainz and Wiesbaden, and Darmstadt utility HEAG expect from the close cooperation they have now agreed on. HEAG will become the third partner in KMW and take over a more than 33.3% stake. The new alliance will supply 20% of the state of Hesse's electricity requirement and 2% of total German power consumption.The agreement was reached after "considerable disruptive efforts", according to the cities' mayors, on the part of Germany's largest power generator RWE Energie. The news has been widely welcomed by environmental and municipal organisations as a "cornerstone of communal energy supply". The town's mayors explained that the "epochal decision to concentrate forces" is to pave the municipal utilities' independent way in the competitive environment about to arise in the EU electricity industry. Key element The key element of the agreement is the construction of a joint gas and steam turbine-driven combined cycle 360 MW power station, of which HEAG will use half the power generated. So far, HEAG has bought nearly 100% of the power it distributes from RWE. RWE nearly succeeded in preventing the new partners' alliance. According to Wiesbaden's mayor Achim Exner, it tried to drive a wedge between the partners by "making HEAG a dumping offer for exactly that volume of electricity it will receive from the new plant." RWE allegedly also tried to get the partners to downsize the capacity of the new power station. RWE confirms it did indeed make an offer to HEAG, explaining any generator would try to keep its customers in view of the fiercer competition to come with the deregulation of the market. HEAG, for its part, hopes its decision to throw in its lot with KMW will pay off, despite the "very good offers" by RWE. The latter would, however, have tied HEAG to RWE for 15-20 years. HEAG explained it was primarily moved by strategic considerations, with its freedom to act in the emerging power markets uppermost on its mind.Sales to double The supply area of the three municipal partners together covers 2,700 sqm and has 1.5m inhabitants. Consequently, electricity sales are expected to double to roughly 8 TWh/yr. KMW's already existing gas-fired 350 MW combined cycle power station at Ingelheimer Aue, together with the new plant to be built close by at the same location, will meet roughly 50% of demand. The rest is to be bought from third parties, with such purchases to be negotiated only jointly "as of now". When the new plant comes on stream, scheduled for 2000, KMW will take three old coal-fired units, with a capacity of 100 MW each, off line. That a municipal grouping has shown itself powerful enough to confront a power giant will be a signal for the whole of Germany, according to KMW and HEAG. They are convinced that their

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"marriage" gives them the chance to become true "negotiating partners" with the large electricity suppliers.RWE grids They added that they will surely also in future take deliveries from RWE, however, not exclusively. "RWE will only be one of many possible suppliers." In fact, there is good reason why their connection with RWE cannot end completely: RWE owns all the grids the Hesse suppliers need to rent to transport power. Already the partners are thinking out loud about a potential expansion of their union. It is conceivable, they say, to invite further municipal utilities, such as Stadtwerke Frankfurt or Stadtwerke Offenbach, into the grouping. This would not necessarily mean setting up a joint supply company: it would be sufficient to organise power purchases jointly, for instance. KMW and HEAG reason that at a time when the large power concerns are trying to increase their market shares, the municipal utilities "are well advised to stick together" to defend their businesses." (FT Bus Rep 13 October 1997)57 " MVM closely follows the privatisation of the energy sector in Romania and Ukraine and might be involved in building plants as greenfield investments." 10 Mar 1998 MTI-Econews 58 "11 Mar 1998 SPP BOHEMIA ADMITTED TRYING TO GET ENERGY NETWORK STOCKS: RUDE PRAVO Reuter Textline (Q2:24)

The SPP Bohemia company, which is half owned by the Slovak company SlovenskyPlynarensky Priemysel and the Czech company Moravia Systems AS, has admittedto trying to accumulate shareholder rights to natural gas and electricitydistribution companies from Czech municipalities. The company's lawyers, whoreleased the information, refused to say for whom the purchases were made.The lawyers maintain that the purchases are not being made for the Russiangas corporation Gazprom, but that does not rule out the possibility that theshares could end up in Gazprom's hands.Moravia Systems is controlled by people related to SPP Bohemia's chairman ofthe board. The business registry shows that SPP Bohemia raised its basiccapital to the point where a hitherto unknown partner should receive a40-percent share in the company. The lawyers refused to name this partner.An interesting point in the whole affair is the fact that SPP Bohemia'schairman of the board was named to the supervisory board of one of thedistribution companies, Severomoravska Plynarenska AS, with the support ofthe National Property Fund, who represents the state's share in the company.As Pravo previously reported, the fact that attempts are apparently beingmade to acquire municipalities' shareholder's rights to Czech electricityand natural gas distribution companies represents a potentially seriousproblem, leading to a loss of control by the state in these enterprises."59 "15 Apr 1998 Ekonomicke zpravodajstvi: SPP Bohemia Hodonin will not pay dividends for 1997 - SPP Bohemia plans to acquire a 50% stake in Moravske naftovoe doly and 34% stake in three gas distribution firms: Business and Industry (Q1:31)

SPP Bohemia (SPPB) (Hodonin, Czech Republic), gas firm, plans to focus onactivities in the field of the gas and oil industries. The firm shouldacquire a 50% stake in in the mining firm Moravske naftove doly (Hodonin,Czech Republic) in 1998. Further, SPPB wants to acquire nearly 34% stakes in

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the distribution firms Severomoravska plynarenska (Ostrava, Czech Republic),Vychodoceska plynarenska (Hradec Kralove, Czech Republic) and Jihomoravskaplynarenska (Brno, Czech Republic). SPPB saw a net profit of 36.42 mil Kcunder revenues of 877.568 mil Kc in 1997. About 20% of the profit will betransferred to the firm's reserve fund and the rest will not be divided. Thecompany will not pay dividends for 1997. SPPB has a stock of 500 mil Kc plusa premium of 200 mil Kc in its capital fund. The company has a 50% stakeheld by the investment firm Moravia Systems (Hodonin, Czech Republic) and a50% stake by the gas firm Slovensky plynarensky priemysel (SPP) (Bratislava,Slovakia). SPPB has moved its headquarters to Prague."60 "23 Mar 1998 SPP, SE POWER COMPANIES RESERVED ON PRIVATISING CZECH DISTRIBUTORS: CSTK ECOSERVICE Reuter Textline (Q2:28)

BRATISLAVAWhile the power company Slovenske elektrarne (SE) is not consideringentering the process of the privatisation of Czech regional powerdistributors, the gas company Slovensky plynarensky priemysel (SPP), alreadyinvolved in the privatisation, said it would not comment on the matter untila Czech government decision.The spokespersons of the two companies made their statements for CTK today.According to a Czech cabinet decision of last week, a decision on theprivatisation of 16 regional power and gas distributors will be made by theend of June.'SE has been examining the process, but has not considered entering it,' SEspokeswoman Alena Melicharkova said.SPP spokesman Tibor Repta dismissed claims that SPP was buying up Czechdistributors for Russia's Gazprom.SPP Bohemia, based in Hodonin, south Moravia, which is 50 percent owned bySPP, said earlier this month that it wanted to acquire a strategic share inCzech distributors Vychodoceska plynarenska (VCP) and Severomoravskaplynarenska (SMP). SPP Bohemia currently holds about 10 percent in each and,including shareholder rights bought from municipalities, the companycontrols about 15 percent in VCP and SMP. SPP Bhemia holds three percent inJihomoravska plynarenska."

61 "18 Mar 1998 ASSOCIATION OF TOWNS HOLDS 31% OF JCE POWER DISTRIBUTOR: CSTK ECOSERVICE Reuter Textline (Q2:24)

CESKE BUDEJOVICEMembers of the Power and Gas Association of South Bohemian Municipalities(EPSO) hold 31 percent of the shares of the Jihoceska energetika (JCE) powerdistributor.Altogether towns and comunities hold 34 percent of the shares. For some timeEPSO has been warning them against selling their ownership rights, as thismight lead to an uncontrolled privatistion of energy companies.EPSO is calling for the statutory bodies of energy distributing firms to be

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reorganised using the model of the CEZ power company. This would helpclearly separate shareholders' decision-making powers from the executivepowers of the management. EPSO is also demanding that JCE and the southBohemian gas utility Jihoceska plynarenska (JCP) pay dividends from their1997 profits.Salzburger Kredit und Wechsel Bank also holds a stake both in JCE and JCP.JCE increased its receipts from Kc4.935bn in 1996 to an interim Kc5.168bnlast year. Pre-tax profit was Kc217.185m and net earnings are estimated ataround Kc130m. The company has share capital of Kc1.916bn.For more information: Jihoceska energetika as."62 "18 Mar 1998 JME RAISES REVENUES TO KC13.49BN LAST YEAR: CSTK ECOSERVICE Reuter Textline (Q2:24)

BRNOJihomoravska energetika (JME) power distributor posted Kc13.49bn in interimrevenues last year, up 3.9 percent from 1996, board secretary Ladislav Barvahas said.Around 90 percent of the total were revenues from electricity sales. Thecompany supplied 7,980 GWh of electricity to south Moravian buyers lastyear, or only 99.25 percent of the 1996 level.At the end of last year 46.7 percent of JME's shares were in the hands ofthe National Property Fund (FNM), while towns and communities in the regionowned 33.5 percent. Other legal entities had 18.37 percent, of whichSalzburger Kredit und Wechselbank had 9.36 percent and Citibank 8.48percent. Investment funds possessed 0.22 percent and individuals 1.21percent.Barva says that the management is not getting involved in the company'sprivatisation. JME has information that some towns and communities areselling the ownership rights to their shares, he added, noting that this isat variance with the targets of JME's privatisation project. However, theycannot be prevented from doing so, he said.The FNM and the Industry and Trade Ministry are following developments andare reportedly prepared to take steps to maintain the state influence inenergy distributing firms, Barva said."63 "27 Feb 1998 Ekonomicke zpravodajstvi: SME launched a new custom information system in February - Severomoravska energetika's new customer service system will be operational by year end 1998, company has 23% of the Czech electricity retail market: Business and Industry (Q1:28)

Severomoravska energetika (SME) (Ostrava, Czech Republic), electricitydistributor, will install a new custom services system by the end of 1998.At the end of 1998 the system will serve about 840,000 customers and willcover all SME's business activities in all localities. At the beginning ofFebruary 1998 the company launched the system for the first 50,000 customersin Frydek-Mistek, Czech Republic. SME expects a net profit of 300-350 mil Kc

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for 1997 compared to 540 mil Kc in 1996. The decline will be consequent onfloods in July 1997, which caused SME damage worth nearly 500 mil Kc. SMEsaw proceeds of 13.4 bil Kc in 1997 compared to 14.2 bil Kc in 1996. Since1995 SME has invested more than 3 bil Kc, above all in the construction ofnew power facilities, the renovation of low-voltage mains and a complexinformation system. SME does nearly 23% of all electricity sales in theCzech Republic, being the largest local distributor."64 "17 Mar 1998 WEST BOHEMIAN MUNICIPALITIES NOT CONSIDERING SELLING ZCE SHARES: CSTK ECOSERVICE Reuter Textline (Q2:23)

PLZENThe West Bohemian towns and villages owning stakes in regional powerdistributor Zapadoceska energetika (ZCE) are not considering selling thesestakes for the time being, Erich Benes of the Association of West BohemianMunicipalities told CTK today.West Bohemia is one of the few regions where municipalities have preferredto keep power distributors' shares in their portfolios. ZCE's shareholders on February 27: ================================== 48.3% . ..... National Property Fund 8.7% . ..... Salzburger Kredit und Wechsel Bank 7.1% . ..... the town of Plzen 6.2% . ..... Bayerische Hypoteken und Wechsel Bank 26.9% . ..... other west Bohemian muncipalities: of these: 2.2% . .. Karlovy Vary 1.6% . ...... individuals 1 % . ...... employees 0.2% . ...... other legal entitiesFollowing a decision at the last general meeting, employee shares have beentransformed into publicly tradable ones.Last year's general meeting also approved an alteration to ZCE's articles ofassociation, according to which any transfer of shares betweenmunicipalities now has to be approved by the general meeting, whilepreviously the approval of the board sufficed."65 "17 Mar 1998 SCP MANAGEMENT UNAWARE OF ANY CHANGES IN SHAREHOLDER STRUCTURE: CSTK ECOSERVICE Reuter Textline (Q2:24)

USTI NAD LABEMThe management of north Bohemian gas utility Severoceska plynarenska (SCP)has no knowledge of anyone buying up the company's shares and gathering theminto a larger stake, Josef Chyle from the firm tells CTK.SCP's shareholder structure remains officially unchanged. Apart from theNational Property Fund (FNM), which owns 49.2 percent of the shares, noindividual shareholder has a stake larger than ten percent. Municipalitieshold a combined stake of 34 percent of the publicly tradable shares.Chyle says he has no information for now even on whether any of the

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municipalities have sold their shareholder rights in SCP. In north Bohemia,where electricity and gas associations of municipalities are operating, thesituation is rather different than elsewhere and the tendency towardsselling shareholder rights is not so strong. On the other hand, he says,such cases cannot be ruled out. SCP's management believes that towns andcommunities have already received offers of this type from brokerage firms.SCP's management is not involved in any way in the company's privatisationat present."66 " The Minister of Industry, Trade and Tourism has put his seal on a decision to forbear any increase in gas and electricity prices in April, the ministry said.Minister Szabolcs Fazakas's decision comes after National Energy Office calculations showed that the next scheduled quarterly increase, due in April, is unjustified.Earlier, Prime Minister Gyula Horn and Mr Fazakas suggested that gas and electricity prices could stay put in April, saying that the devaluation of the forint from January through March will remain under 3pc, the trigger-point for a price hike. The official crawling-peg devaluation, effected by the National Bank of Hungary, is 0.9pc each month at present." 12 Mar 1998 MTI-Econews67 "28 May 1998 ELMU AGM APPROVES FLOTATION: MTI-ECONEWS Reuter Textline (Q2:29)

Budapest, May 28, 1998 (MTI-ECONEWS) The AGM of Budapest Electricity Works (Elmu Rt) approved the introduction of the company's shares on the Budapest Stock Exchange in the last quarter of 1998, chairman of the board Emmerich Endres announced on Thursday.The German consortium RWE-ENBW holds more than 71pc of Elmu, Budapest City Council holds around 10pc, and small investors hold the remaining shares.The German consortium has no plans to sell its shares on the stock market and no new shares will be issued, Mr Endres said.Elmu made a HUF 3.5bn pre-tax profit last year, following losses of HUF 3bn in 1996.The AGM approved the board's proposal that last year's profits should be put into reserves and be used to upgrade Elmu's power line network.Elmu had revenue of HUF 90bn last year, HUF 24bn more than in 1996. The company targets revenue of HUF 105bn and capital investment of HUF 13.2bn this year.Elmu, which has 1,340,000 customers, sold 8,072GWH of electricity last year, only 1pc more than in 1996.Mr Endres expects the government to make a decision on energy prices in July, and said that he would welcome an adjustment corresponding to the rate of inflation in the first half of the year. Elmu still has a lower rate of return on equity than the 8pc promised at the time of Elmu's privatisation, Mr Endres added.At Elmu's request, the Ministry of Industry, Trade and Tourism recently requested the National Energy Office to review the possible cost content of fixed energy prices.Mr Endres expressed confidence that the new government would respect the company's privatisation contract and existing regulations."68 " 37**14 May 1998 BAYERNWERK SAYS HUNGARY 97 PROFITS TOO LOW: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:49) By DUNCAN SHIELS BUDAPEST German utility Bayernwerk said it was disappointed in the 1997 results of its four energy distribution companies in Hungary and called for energy pricing to be reviewed in order to

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generate the returns promised by the Hungarian government. 'We are far from satisfied with (the units') various profit rates,' Bayernwerk Hungaria's director Konrad Kreuzer told a news conference on Thursday. 'They are ..evidence of the weakness of a state-controlled system of regulating prices for electricity and gas, of an unsatisfactory price structure, and energy prices which do not begin to cover costs.' 'This situation must change in a country like Hungary which is aspiring to join the European Union.' Bayernwerk is one of several Western utilities which bought into Hungary's energy generation and regional distribution sectors in late 1995. In an appendix to the privatisation contracts, the government promised investors an eight-percent return on investment by 1997. Bayernwerk, RWE, Tractebel and Electricite de France have all complained that this has not been achieved, despite the introduction of a quarterly pricing mechanism system which was supposed to take reasonable costs into account. Bayernwerk currently holds a 47 percent stake in electricity distributor Dedasz, 27.4 percent in Edasz, a joint 49 percent stake with Germany's Isar-Amperwerke AG in Titasz and a joint 50 percent stake with Austria's Energieversorgung Niederosterreich (EVN) in gas distributor Koga. zKreuzer announced all four companies had turned 1996 losses into 1997 pre-tax profits of 1.19 billion forints (Dollars 5.6 million) in the case of Dedasz, 4.33 billion for Edasz, 351 million for Titasz and 302.5 million forints for Koga. z'This yields a net profit of 5,750 million forints (but) we were again unable to achieve the eight percent (return) on equity promised for 1997,' he said. 'To do so we would have had to attain about 10,300 million forints.' Kreuzer said Bayernwerk had submitted a formal report to Hungary's Ministry of Industry and Trade in order try and resolve by the end of this year the question of revising the pricing formula. 'It's impossible for Hungary on the way to becoming a member of the European Union to be permanently battling with the companies about costs covering prices,' he told reporters. 'There must be a decision by the end of 1998 - at least a compromise.' He would not be drawn as to what Bayernwerk would do if such an agreement is not reached this year. Kreuzer said Bayernwerk was streamlining the four distribution companies for eventual listing, which would not happen before next year. 'We want to sell out all our non-core activities and streamline these companies by the end of the year - Titasz, Demasz and Kogaz will then be ready to be to go to the stock exchange,' he said, adding that the timing of the listing was still not decided. 'The ultimate decisions as to when, how and on what stock exchanges the companies would be quoted are still open,' he said. (Dollars = 210.7 Hungarian Forints)."69 "23 Apr 1998 DEDASZ TO PAY OUT ALL AFTER-TAX PROFITS AS DIVIDEND: MTI-ECONEWS Reuter Textline (Q2:34) Budapest, April 23, 1998 (MTI-ECONEWS) Wednesday's AGM of South Hungarian Electricity Supply Company (Dedasz Rt) approved a decision to pay out all of last year's total after-tax profit of HUF 1.193bn as dividend. The dividend will be 4pc, or HUF 400, per share. Dedasz has registered capital of HUF 29.798bn and is majority owned by the German Bayernwerk, which acquired 47pc of Dedasz at the end of 1995. According to a report on Thursday in the economic daily Napi Gazdasag, Bayernwerk voted at the AGM with a share packet with nominal value of HUF 16.4bn. Dedasz had operating profits of HUF 1.837bn on net sales of HUF 39.758bn last year, well up from HUF 382m in operating profits in 1996. Financial losses totalled HUF 655m while pre-tax and after-tax profits were equal. While 1997 net sales were 29.4pc higher than in 1996, the increase was due to price hikes as the actual quantity of electricity sold in the year fell 1.7pc on 1996, general manager Denes Tatar said. Network losses for 1997 increased by 12.7pc on the previous year he said, adding that reduction of these losses was one of the company's main goals for 1998. Dedasz projects to make HUF 6bn in investments this year, up from HUF 3.3bn in 1997. External financing for

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these developments will be only HUF 300m over 1997 as the company plans to provide HUF 4.5bn from its own resources and HUF 1.2bn will be jointly financed with major consumers. Shareholders at the AGM approved a decision authorising Dedasz's management to take 'necessary and reasonable' steps for the introduction of company shares to the Budapest Stock Exchange, but it was not made clear when the company intends to meet the conditions of a stock exchange floatation. Under the Securities Act, Dedasz must intitiate the introduction of its shares to the BSE by the end of this year. The AGM also approved a measure that will allow for the ultimate dematerialisation of company shares. com."70 "12 Mar 1998 PRESS FOCUSES ON DEREGULATION OF ENERGY PRICES AND RENTS: CSTK ECOSERVICE Reuter Textline (Q2:67)

PRAGUEMost commentaries in today's press are dedicated to the increase in energyprices and rents approved by the government on Wednesday.Most of the papers agree that the correcting of energy prices and rents mustcontinue and that the hikes in July won't be the last. For now, electricityis to go up by 24 percent, gas by 27 percent and rents on average by 27percent.Hospodarske noviny (HN) says that the optimum solution would be for thecabinet at least to adopt binding policies for the structure of rents or forenergy. But at the same time the paper concedes that the current governmentlacks the mandate for such long-term visions given the current politicalsituation and the upcoming parliamentary elections.A high burden of responsibility will therefore fall on the shoulders of thegovernment that emerges from the elections. No matter what the compositionof the new government is, sooner or later it will have to continue adjustingenergy prices and rents, writes the daily.As far as energy prices are concerned, the hike for households this yeardefinitely can't be the last one, says HN. Even though many politicians arequestioning the energy companies' costs, the figures speak clearly. Gas isbeing sold at a loss of several billion crowns and energy companies arehaving to take out loans to offset the imbalance. Despite the stance of theSocial Democrats and others, in the long term the cheapest path for both thepublic and industry would be to complete the price deregulations quickly.Competition should be introduced into energy generation and distribution andthe rules for regulation tightened. This is a cheaper method than payinghigh interest for debt-ridden energy companies in the future, the papersays.Similarly, Slovo says that electricity and gas prices will keep on rising,because the more delays there are in correcting energy prices, the moredrastic the impact will be on the population. Any future government decisionwill be more a matter of politics than expertise, and political opinions onthe deregulations will certainly change after the elections, Slovo says.'Evidently it was the same story yesterday. It can be guessed that thegovernment's debate yesterday was not about looking for a compromise betweenthe necessary and possible price movement. The government was looking more

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for a solution that would please everyone and not cause too much trouble forits short future in Czech politics .. Nobody dared to say that the..struggle about whether electricity prices are to rise 20 or 30 percent hadno chance of bringing significant savings or a significant increase inspending for the public. Political opinions on the deregulations willcertainly change after the elections. But one thing is clear beyond doubt -the last word has not been spoken. Electricity and gas prices will keepgrowing. And considerably,' Slovo's commentator concludes.Lidove noviny (LN) says the July hike in energy prices and rents is arepayment of old debts. It makes no sense to be angry with politicians, nomatter how unpopular the gesture may be, it adds.'For decades we lived on debt ..quite comfortably - and now there is simplyno other way than to start paying. It's a pity that the previouspost-November (1989) cabinets were so unaware of the pressing problems:energy prices could have been going up at a slower rate for some years nowand the gradual changes would have been easier to take,' the paper says.In a column headlined 'Government cuts to the quick', Pravo says that thederegulations represent one of the biggest price shocks of thetransformation period for family budgets.The daily notes that the government decision will cause virtually all otherprices to rise as well. The government probably couldn't have chosen a worsemoment for a drastic acceleration in these prices, Pravo adds.'It is more than clear that people will express their discontentment in afitting manner in the early elections,' Pravo says, and points to possibleprotest action by the unions.""12 Mar 1998 WITHOUT ENERGY POLICY, DEREGULATION IS MERELY PRICE HIKE - CSSD: CSTK ECOSERVICE Reuter Textline (Q2:21)

PRAGUEIn a country where energy policy is not clearly defined, any deregulation ismerely a hike in prices, Social Democrat (CSSD) deputy Josef Hojdar tellsCTK today.Hojdar says his party wants to bring its proposed energy policy before thepublic in the next few weeks. If the CSSD gets enough votes in theelections, it is ready to implement an energy policy with a strong role forthe state which will lead to the lowest possible costs for the provision ofenergy, he says.The government agreed on Wednesday on price increases of 24 percent forelectricity, 27 percent for gas and 27 percent on average for rents, allwith effect from July 1, 1998. The opposition CSSD has labelled the move associally insensitive. Unions consider the decision to be laughable and saythey will be demanding wage rises."71 "12 Mar 1998 CEZ - THE CABINET SOLD US OUT ON ENERGY PRICES: HOSPODARSKE NOVINY Reuter Textline (Q2:30)

Energy companies that impatiently awaited the cabinet's decision on

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Wednesday on increases in electricity and gas prices this year sighed withrelief in unison on Wednesday: At least something. At least the increase isbetter than nothing or 15 percent.The dominant electric utility company CEZ as, however, is not at all happyabout the 24-percent increase in household electricity prices. 'They sold usout - to labour unions, politicians, Social Democrats,' CEZ's financialdirector Petr Voboril reacted. CEZ expected the cabinet to approve anincrease of at least 30 percent, which would enable it to increase itsprices to distribution companies by at least six percent. This would giveCEZ net profit this year of about 4.2 billion crowns, which would help itwith 20-billion-crown investments. CEZ welcomes the cabinet's decision tomore strictly regulate the expenses of energy companies. ChristianDemocratic (KDU-CSL) chairman Josef Lux said it is unacceptable that CEZinvested three billion crowns to buy Severoceske Doly and says this amountwill increase electricity prices for every citizen. CEZ denies this.State-owned Transgas believes the 27-percent increase in gas prices is areasonable step. Nevertheless, Transgas expects to have an internal lossthis year from gas sales on the domestic market of 5.5 to six billioncrowns."72 "17 Mar 1998 ELECTRICITY PRICES TO TRIPLE AT THE TURN OF MILLENIUM - LN: CSTK ECOSERVICE Reuter Textline (Q2:28)

PRAGUEJuly 1998 will not be the last time electricity prices go up, experts toldLidove noviny (LN).Electricity prices paid by households in Europe are on average three timeshigher, says the paper, adding that, with the further liberalisation of theenergy market, electricity prices here will be corrected. The cabinet iswell aware of the pressure exerted on the correction of prices, it says,referring to a cost analysis worked out by the Finance Ministry.According to the material, writes the paper, in the first stage of balancingthe prices with those paid by large customers, households are expected tospend about 80 percent more than what they pay now. The increase of prices,however, will not be steep, as the cabinet has given in to the pressureexerted by the trade unions and extended the deregulation of electricityprices from the original two to three years. Nothing, not even politicaldebate, will prevent electricity prices from going up after deregulationshave been finished, writes LN, referring to the opinions of experts.If electricity prices in the Czech Republic are to be on the same levelwhich is customary in the European Union, households in the Czech Republicwill pay over Kc2,100 per month instead of the current Kc700, says JanHanousek of the Czech Academy of Sciences National Economy Institute. 'Itwould be naive to believe we can create sort of a barrier and ignore theprice level in the European Union,' Hanousek told Lidove noviny."73 "27 Mar 1998 EAST EUROPEAN NUCLEAR PERFORMANCE IN 1997: Power In Europe FT Bus Rep: Energy (Q3:240)

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Most public attention on nuclear in the Former Soviet Union and EasternEurope has centred on two issues: the closure of plants dubbed 'unsafe' bythe West, the RBMKs and the WWER-440/230s, and the attempts to completepart-built plants of Soviet design. In both cases, progress has at best beenlimited and, at worst, things have gone back. Perhaps the only ray of lightis the continuing improvement in the performance of the WWER-1000 plants inUkraine, writes Steve Thomas in his annual review of east European reactors.RBMKsThe disaster at Chernobyl, a RBMK plant means that plants of that designwill always be seen by the public as a major safety hazard and so attemptsto close them always have a populist appeal. The problem mitigating againsttheir closure, however, is that those plants have generally been veryreliable in normal operation and this makes them highly attractive in thecollapsing economies of the Former Soviet Union.Economic decline does lead to dramatic falls in electricity demand, but,paradoxically, this does not make closure of nuclear generating plant aneasier decision. Retaining them in service generally avoids use offossil-fired plant, reducing imports of fossil fuel or freeing fossil fuelsfor export. It may also allow exports of power, one of the few commoditiesthese countries produce that has a ready market in the West.For the RBMKs, a key economic decision point comes after about 15 years ofservice. It is at this point that the fuel channels need replacing, anoperation likely to cost several hundred million dollars. Nearly all theRBMKs are near or beyond that age and western banks see the decision onwhether to re-channel as indicative of the date of closure the countrieshave in mind for these plants.In Ukraine, Chernobyl 1 was finally declared closed in June 1997 mainlybecause of the condition of the channels, but repairs at unit 3 (retubing10% of the fuel channels) were begun in July, and are designed to give thisplant another 10 years of life. These have taken the plant out of servicesince July and restricted the load factor to much lower levels than has beentypical for this type of plant. The outage was extended by the discovery ofcracks in important piping which necessitated a thorough survey of the weldsand the plant may not come back on-line before this summer.The situation was complicated by a World Association of Nuclear Operators(WANO) report which was critical of the standard of operations there and,uncharacteristically for WANO, given wide press coverage. Predictably theUkrainian authorities felt it necessary to publish a detailed denial of allallegations. Whether this incident will damage WANO's standing in the regionas a non-partisan organisation only interested in improving the all roundperformance of nuclear plants has yet to be seen.Russia has been carrying out a rolling programme of re-channelling andupgrading over the past five years, starting with plants of the firstgeneration RBMK design.Leningrad units 1 and 2 have already been rechannelled and unit 3 (second

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generation) has been shut-down since 1995 for this work. Kursk 1 finallycame back on-line in December having been closed since April 1994 and thismay allow unit 2 to be closed for the repairs that were previously scheduledto begin 1997. Smolensk 1 (second generation) was closed from August onwardsfor upgrading. If these long-term outages are excluded, the average for theRBMKs in Russia increases from a mediocre looking 60% to nearly 80% with theLeningrad 4 plant achieving a load factor of 95%, outstanding by anystandards.The two units at the Ignalina plant are the only examples of the 1,500 MWversion of the RBMK design and, unlike the smaller units, have never provedreliable in operation. 1997 was a controversial year for them culminating inthe publication of a report commissioned by the EBRD which concluded that,on economic grounds, the continued operation of the plants until well intothe next century was justified.The output of both units was restricted to about 80% of design and unit 1was off-line from April until August, initially for routine maintenanceuntil June, then due to a prolonged wrangle about relicensing of the plantbetween EBRD and the Lithuanian authorities.The dispute concerned the licensing of the plant by the Lithuanian, ratherthan the Soviet authorities and this should have been completed by the endof June. The Lithuanian authorities argued it should be delayed to themiddle of 1998. A particularly contentious issue was whether replacing 10(out of more than 1,600) fuel channels constituted routine maintenance or,as the EBRD at first argued, a life-extension, which would have violated anagreement with EBRD.WWER-440/230The WWER-440/230 is the first generation of the other Soviet nuclear powerdesign, the WWER (similar to a Western pressurised water reactor). As abroad generalisation, it is as docile as the RBMK is unstable, and in thepast has been at least as reliable. However, they lack some important safetysystems and cannot readily be upgraded.The first four units at the Kozloduy plant in Bulgaria are the mostnotorious of this design as it was here, in 1991, that an IAEA inspectionteam found not only the design deficiencies, but also poor quality ofmaintenance. Since then, there has been a mixture of short-term upgrades atthe WWER-440/230s and attempts to upgrade and get reliable performance outof the two WWER-1000 plants (units 5 and 6) at the same site to allowretirement of units 1-4. All units produced some power during the year, butmonthly performance reports from Bulgaria were not published for sevenmonths, so it is not easy to determine whether the poor performance was dueto a few long outages, more general unreliability, or operation at reducedlevels. Nevertheless, far from planning for their closure, the Bulgarianauthorities are looking to extend the live of these plants using any powerthey cannot use internally for export.The second unit at the two unit Metsamor plant in Armenia was recommissionedin October 1995, seven years after it was closed following the disastrous

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earthquake in the region. After a reasonable first year back on-line,performance was very good in the first half of 1997 and then fell away,possibly because the output of the plant was not required until it wasclosed at the end of July for a refuelling and upgrade outage, scheduled for60 days. In fact the plant did not return to service until November, when anagreement with the Russians was reached on payment for the new fuel. Itseems unlikely that unit 1 will be returned to service as parts from it wereused to bring unit 2 back on-line.Unless the economic situation turns round very quickly, boosting electricitydemand at the same time, the agreement reached with Russia and France tosupply a third reactor appears redundant, given that Armenia has neither theneed nor the finance to build a new plant.There are six other plants, two in the Slovak Republic and four in Russia.The Kola 2 plant in Russia was out of service for more than six months, butthe mediocre average in Russia seems to be accounted for mainly byunreliable performance. Despite this, Russia announced in September that itis planning to run these plants until at least 2010 - five years more thanpreviously planned. The two Bohunice units seemed more reliable, but wereboth shut down for three months-plus outages to complete a programme ofsafety upgrades begun in 1994, which aims at keeping the plants in serviceuntil 2010.WWER-1000These plants, which represent about 45% of capacity in the region and whichare not thought to embody significant design flaws, should represent thefuture of nuclear generation there. However, a mixture of poor qualityequipment, poor construction quality and perhaps the design itself has meantthat the reliability of these plants has seldom been better than mediocre.The bright spot for the region as a whole was the continuing improvement inthe performance of Ukraine's WWER-1000. If the improvement is sustained,Ukraine may be seen to have worked a miracle comparable to that achieved byNuclear Electric in England, getting respectable performance out of the UK'sAdvanced Gas-Cooled Reactors.A detailed look at the performance reveals a more complicated picture,however, with the average load factor over a longer time-span seeming toshow recent performance merely recovering to 1992 levels. 1992 performanceneeds to be interpreted with care, however. In that year, nearly all theplants were operated at significantly above design ratings (up to 8%)accounting for much of the extra output. This level was unsustainable andwhile there was a dip in performance in 1994/95, the 1997 performance is aclear advance on the past.Another important factor becomes apparent when individual plants areexamined - that the older plants, especially South Ukraine 1 and 2, andZaporozhe 1, 2 and 3 perform significantly worse than the newer ones. It istherefore no surprise that the worst of the lot, Zaporozhe 1, is again muchthe poorest in 1997.The achievement of the Ukrainians is made all the more clear, when compared

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to Russian and Bulgarian experience. Here the performance is poor and showslittle sign of improvement, although, as with their WWER-440/230s, it isdifficult to get a clear picture of what is going wrong because of erraticreporting of data.Whether the problems will be solved by the package of western funded andsupplied upgrades that companies like Westinghouse, Siemens and Framatomehave been vying for over the past two years remains to be seen.Russian experience is almost the opposite of Ukraine's. The only reasonablyreliable plant was Novovoronezh 5, the oldest plant, commissioned in 1981,and prototype for the WWER-1000 series, with a load factor of 71%. Some ofthe newer plants, Kalinin 2 (1987, 47%) and Balakovo 3 (1989, 25%) had thepoorest records in 1997. Only Balakovo 3 suffered a prolonged shut-down ofseven months, the other plants producing at least some power in most monthsof the year.WWER-440/213These are the least problematic plants in the region inheriting andimproving on the reliability of their close relative, the WWER-440/230, butwith much improved safety. Most are also in countries such Hungary and theCzech Republic with a strong engineering base and economies which arerecovering strongly from the post Soviet slump. This gives greaterconfidence that high standards of operation and maintenance will becontinued.Other PlantsThe CANDU plant installed in Romania, Cernavoda 1 (680 MW) had an excellentfirst year of service, achieving a load factor of 87%. Discussions continueon funding for completion of a second unit at the site, but work is not yetfar advanced. The Westinghouse PWR in Slovenia, Krsko (632 MW) also had agood year, recording a 86% load factor. The fast reactor in Russia,Beloyarsk 3 (600 MW) also had satisfactory year - excellent by normal fastreactor standards - achieving a load factor of 72%.Plants Under ConstructionThe impasse on western funding for completion of Khmelnitski 2 and Rovno 4(WWER-1000) in Ukraine continues despite reports that the matter will beresolved soon. The Ukrainians are now talking increasingly seriously aboutgoing it alone, or with the assistance of Russia. In the Czech Republic,completion of the two Temelin units (WWER-1000) continues to slip and coststo rise.Construction on these plants was started in 1986, slowed in 1990 and thenrestarted in 1994 with the assistance of western finance and technologyprovided by Westinghouse. Ambitious plans to upgrade instrumentation andcontrol systems have proved costly and problematic and start-up will not bebefore 2000. Indeed, there has been speculation that the project could stillbe abandoned completely.In contrast to the high profile problems in the Czech Republic, little ispublished in the West on the plants Russia claims to be completing. Russianpromises of early completion are frequent, but the dates continue to slip.

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The most advanced plants are two WWER-1000s, Kalinin 3 and Rostov 1, anRBMK, Kursk 5, and an 800 MW fast reactor, Beloyarsk 4. Beyond these, thereare plans for further orders using new designs, but lack of funding islikely to preclude much progress on these plants. While the completion oftwo of the four part-built Mochovce units in the Slovak Republic(WWER-440/213) has been far from free of controversy, the end is at lastreported in sight with start-up of the first unit expected in summer."74 "03 Mar 1998 News: Europe: Estonia counts the cost of cleaning up for the EU: Leyla Boulton: Financial Times (Q1:89)

By LEYLA BOULTONWhen Estonia was given the sailing event for the 1980 Olympic games, Moscowpoured money into building the Baltic republic's first sewage treatmentplant. In true Soviet fashion, however, the plant was not ready in time.Two decades later, the now-independent nation faces a far more challengingtimetable. At the end of this month Estonia is to begin talks on joining theEuropean Union along with Poland, Hungary, Slovenia, and the Czech Republic.And one of the stiffest conditions of entry will be digesting the EU'senvironmental law - almost 100 regulations covering everything from sewerageto car exhaust standards.Implementing these directives and regulations could cost the 10 central andeast European countries that hope ultimately to join the EU as much asEcu120bn (Pounds 80bn). Despite EU pledges of financial assistance to helpprepare for membership, the wrench will be human as well as financial.Perhaps not surprisingly given their keenness to join the EU, thesupplicants claim to be undaunted by the challenge. Villu Reiljan, Estonia'senvironment minister, says that the environment has become one of hisgovernment's top priorities.Estonia has the advantage of being small and enjoying significant help fromFinland and other European nations. But the challenges it faces are similarto those faced by bigger applicants such as Poland.The tiny country plans to spend EKr10bn (Pounds 420m) from its own budget toimplement an ambitious 10-year environmental clean-up strategy. Its problemscover everything from forestry management to cleaning up radioactivecontamination left by the Soviet regime.But Mr Reiljan admits the government's 'green' zeal is not shared by publicopinion. A recent opinion poll ranked the environment in 10th place 'becausein our situation there are more important problems such as security,education, health care and the economy'.EU businesses and environmentalists, for their part, see the accession offormer communist countries as both an opportunity and a threat. Enlargementwill not just improve Europe's environment: it should also mean a biggermarket for western environmental equipment and know-how, as demonstrated bythe 'green' aid projects already under way.Roughly 80 per cent of the FM450m (Pounds 50m) spent by Finland in helpingformer Soviet bloc countries repair the environment so far was paid to

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Finnish companies that carried out consultancy and construction work.But there is also a fear that politicians may be tempted to relax theenvironmental requirements for new members - in a move which could hurt boththe environment and business in the older member states.Such a course, warns Ritt Bjerregaard, the EU's environment commissioner,would bring huge and growing environmental problems.Business argues that new EU members would enjoy an unfair advantage if theywere to gain the freedom of a single market without having to assume commonenvironmental obligations.Already they complain of 'environmental dumping' by eastern exporters whichenjoy lower costs because they are not bound by the same green curbs aswestern business.Allan Gromov, the Estonian environment ministry official in charge of EUaffairs, expects Finnish and Swedish industry to make a fuss over Estonia'scheap but 'dirty' oil-shale electricity production when it nears accessionearly next century. But he also promises new business for Estonia'sneighbours when the country converts to a gas-fired combustion plant togenerate electricity in 10 to 15 years time.Others argue that the threat of newcomers is not as great as it is sometimesperceived, given the already uneven nature of existing EU members'environmental performance. 'There are sources where we are equally badpolluters,' notes Harro Pitkanen, managing director of the NordicEnvironment Finance Corporation, a western organisation that invests in theformer Soviet bloc.Water pollution from agriculture, for instance, remains a serious problemboth east and west.So while Ken Collins, chairman of the European Parliament's environmentcommittee, fears that the new members could weaken environmental progress ofthe EU across the board, he can already see one clear benefit of theirjoining.The addition to the EU of big agricultural producers such as Poland andHungary will at last 'break the budget' of the Common Agricultural Policy,he says. This in turn will mean an end to the 'unmitigated disaster' ofsubsidising agricultural over-production to the detriment of theenvironment.And while Tallinn, the Estonian venue for Olympic sailing, now treats allits sewage, Brussels, home to EU institutions, continues to dump its rawexcrement into the local waterways."75 "24 Apr 1998 Mol signs agreement with Bosnian company. Signs deal with Mol of Hungary for shipment of 9 bil cubic meters of natural gas to Bosnia over 20 yrs with BH Gas: Daily Telegraph Predicasts PROMT (Q1:26)

Mol, the Hungarian oil and gas company, has signed an agreement withBosnian oil and natural gas companies, BH Gas and Energoinvest, to ship9bn cubic metres of Russian natural gas to Bosnia over the 20 years to

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2018. Under the agreement it will supply 320mn cubic metres of Russiannatural gas in 1998 through its pipeline running from the Ukrainian border in northeastern Hungary to the Yugoslav-Hungarian border. The amountsupplied will increase to 450mn cubic metres by 2002. Mol has committedto transporting 3.12bn cubic metres of natural gas to the region including its agreement with NIS <Serbia>, signed in January 1998. It says it willhave to increase its network capacity to meet these commitments and is tospend USDollars 76.2mn developing its pipeline network. Mol also intendsto extend its pipeline network to supply natural gas to Croatia andRomania."76 "25 May 1998 BULGARIA TO INVEST 48.4 MLN IN GAS SECTOR IN 1998: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:35)

SOFIABulgaria's cabinet on Monday gave the green light to the country's gasmonopoly Bulgargas to invest up to 84.8 billion levs (48.4 million) thisyear in construction projects for its gas network, an official said.Energy Committee deputy chief Kiril Gegov told reporters Bulgargas'investment programme should cover projects under old and new agreements ongas deliveries and transit with Russia's Gazprom natural gas giant.The agreements envisage widening of the gas network on Bulgarian territorytransiting Russian gas to Turkey, Greece and Macedonia and constructionworks in Ukraine.'Some 56 billion levs out of the total sum would go towards transiting gasnetwork projects in Bulgaria,' Gegov said.More than 18 billion levs will be spent on building up a new stretch betweenthe southern towns of Stara Zagora and Ihtiman, part of the pipelinetransiting Russian gas to Greece.Another 8.5 billion levs will be spent on building a stretch from theStrandzha compressor's station in southern Bulgaria to the Turkish border asa first step towards widening the transiting pipeline to Turkey.More than 16 billion levs will be invested in widening the pipeline toMacedonia.The government has also allowed Bulgargas to sell natural gas to domesticconsumers at a premium of 11 percent from June 1, up from current fourpercent, Energy Committee chairman Ivan Shilyashki said.The hike is aimed at meeting Bulgargas' expenses and covering drastic hikesof gas prices on international markets. Some money would be put aside forinvestment funds, he added.But Shilyashki said the price of the natural gas for end consumers inBulgaria would fall by 10 percent from July 1 because since the Aprilagreement Bulgaria receives gas supplies from Russia at much lower prices.Bulgaria plans to diversify gas prices for its domestic consumers fromJanyary 1, 1999."77 "27 Mar 1998 EURO GAS COMPANIES COMPETE HARD FOR MARKET SHARE: REUTER NEWS SERVICE - UNITED KINGDOM Reuter Textline (Q2:109)

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By DOMINIQUE MAGADA LONDONEuropean gas companies with dominant positions within their respectivecountries are competing hard for a bigger share of the market as theEuropean gas market prepares to open up.The large traditional gas companies are already being challenged by smallernewcomers ahead of the adoption of the European Gas Directive.The interconnector between Zeebrugge and Bacton will come on stream inOctober and could herald the changes in the European market.Small newcomers are taking the opportunity offered by the interconnector tomove away from monopoly suppliers.In the Netherlands, gas monopoly Gasunie is being challenged by a smallerregional power producer, PNEM, which has built its own pipeline linking itsplants in North Brabant to Zeebrugge to get gas from the UK through theinterconnector in October.And PNEM has already bought part of the 2 billion cubic metres of gascontracted by Dutch customers from UK producers from October. This gives thecompany alternative gas suppliers to Gasunie.Gasunie, which is 50 percent state-owned, remains in a strong position asone of Europe's main gas suppliers with access to large gas reserves innorthern Germany.Belgian gas company Distrigas did not miss the boat either. The companyinvested 12 billion Belgian francs (324 million) to build a new pipelinebetween Zeebrugge and Aachen near the Belgian-German border to become amajor transit route for UK gas going to Germany, the Netherlands, France andother destinations, and eventually for Russian gas going to the UK.'It was a natural progression of the interconnector,' Distrigas managingdirector JP Depaemelaere told Reuters.Belgium is already a transit point for Dutch and Norwegian gas going tosouthern Europe. About 13 billion cubic metres (bcm) of capacity is alreadycontracted on the Distrigas pipeline, the company said.For Distrigas, it was also important to develop a tight network of pipelinesin order to discourage competition. Under the proposed gas directive, thecompany would lose its exclusive rights to build pipelines in the country.In Germany, smaller companies started to challenge dominant player Ruhrgasby using a loophole in the German legislation before the EU directive waseven agreed.Wingas, a unit of BASF subsidiary Wintershall, is also building its ownpipeline in North-Westphalia linking the Belgian network near Aachen toBielefeld, that will enable the company to buy gas from the UK through theinterconnector.Wingas has signed contracts with gas producer Conoco for one bcm and with BGplc for the other two bcm. The move came after Norwegian cartel GFU andGasunie refused to sell gas to Wingas because it was a competitor of itslong time customer, Ruhrgas.

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The interconnector will enable Wingas to compete directly with Ruhrgas inthe west of Germany.Companies such as Ruhrgas and Verbundnetzgas, the two largest gas importersin Germany, said they did not feel threatened as they have acustomer-oriented approach.Germany also sees itself as a gas transit point in central Europe forNorwegian gas going into Italy and the Czech Republic and Russian gas goinginto France.'We already have negotiated third party access for some of the pipes usedfor transit of gas, and that could develop even more,' said AlfredWurzinger, Head of gas business Department at Verbundnetz Gas AG.A reform of the energy sector will be introduced in Germany in April, whichwill mark the end of the demarcation contracts companies have enjoyed.At present, the largest gas companies in Germany have de facto a protectedarea. Ruhrgas and Thyssengas in West Germany and Verbundnetz gas in EasternGermany.'It means there will be competition in the market place, particularly in theRuhr area where a few companies are now established,' Wurzinger added.As far as France is concerned, national monopoly Gaz de France has an openapproach to market liberalisation.'We're looking at all opportunities that come up,' said George Bouchard,vice-president of GDF.The company has committed five billion francs (833 million) in three yearsfor its international development. Its most recent acquisition was a 38.16percent stake in Berlin gas company, Gasag, bought for 3.5 billion francs(583 million), for which GDF entered into a fight with Ruhrgas AG to win thebid.On a European scale, GDF sees itself as a major provider of storage servicesbecause of its large storage capacity. With 10.5 bcm, it is the fifthlargest in the world, and the second largest in Europe after Italy.GDF could become the main storage supplier for other European countries,such as Britain which lacks storage space and might rent space in Franceonce the interconnector comes into operation.The company intends to keep its existing customers in France byrenegotiating long term supply contracts.Another pipeline, linking Norwegian fields to Dunkirk in northern France,the Norfra, will become operational at the same time as the interconnector.This would allow France to import directly from Norway and bypass theGerman, Dutch and Belgian networks.Britain is betting on the interconnector to sell its excess gas supplies,and gas companies are hoping to find more trading partners on the continent.To the south, the Italian market shows some potential for the gas industry,with a forecast of 60 percent growth over the next 15 years, or 3.5 percentper annum.Italy is currently the EU's third largest gas consumer with 60 bcm in 1997.Power generation is the sector with the highest growth potential, according

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to an Italian government study, which forecast that gas consumption in theelectricity industry would increase to 40 percent in 2000, from 25 percentcurrently.In December, Italian power utility ENEL signed a 22-1/2 year gas supplyagreement with Nigerian Liquefied Natural Gas (NLNG), whereby NLNG woulddeliver 3.5 billion cubic metres per year via France.Under the deal, NLNG will deliver LNG to GDF at Montoir in Britanny, whichwill then deliver gas to ENEL.'We could even envisage that a gas hub develops around Milan because all thegas imports from France, Norway via Germany, Russia and the Netherlands,have to go through the Milan area,' an Italian government official said."78 Austrian oil and chemicals group OMV is talking to natural gas producers and transmission companies about building a central storage facility to help counter fluctuations in European demand. OMV director Marc Hall said the project - Eurostorage Baumgarten - would require several years of planning but talks with potential equity partners including Russia's Gazprom, Gaz de France and Italy's SNAM were underway. 'We in Austria are in a unique position because we have excellent opportunities to provide storage facilities,' Hall told Reuters in an interview. Some potential partners were keen to see the impact of EU gas market liberalisation, due early next year, before committing themselves. But more complex flows - including shipping gas from west to east - and massive seasonal demand fluctuations made the 'flexibility generator' essential, he said. Austria's geographical location has allowed OMV to develop a role as an international distribution hub. The group transports about one-third of all Russian natural gas exports to western Europe via its pipeline network. Hall, in charge of exploration and production (E&P) at Austria's biggest industrial company, said OMV's gas transmission and storage business provided substantial insulation against any potential loss of income which could follow the introduction of supply competition in 1999. 'Of course we are under pressure to cut costs and rationalise but I can not see how a competitor can do what we do cheaper,' Hall said. Hall said OMV, which satisfies 90 percent of Austrian annual demand of about 6.5 billion cubic metres, was in a much better position than Austrian electricity generators who are also facing competition from February next year. 'The difference is that we are not producing natural gas - we produce just 10 percent of annual Austrian demand - our job is only the transmission of natural gas. Competition among producers means we can buy it more cheaply.' 'When you look at (national grid operator) Verbund the trouble it faces is not with its grid but with its production facilities,' Hall said. OMV's gas sales rose nine percent to 12.40 billion schillings in 1997 but the division's earnings before interest and tax (EBIT) fell 16 percent due to restructuring and pipeline upgrade costs and the outlook for 1998 is neutral. OMV planned to spend seven billion schillings by 2005/2007 on increasing the capacity of its Trans Austria Gasline from Slovakia to Italy to 32 billion cubic metres from 22.5 billion. 'Italy is the strongest growth market and clearly the most interesting,' said Hall. The Austrian company was also planning to invest in expanding its link from Baumgarten on the Slovak border to southern Germany. 'Currently the gas goes from Slovakia via the Czech Republic. It would be simpler and cheaper to bring it direct from Slovakia, through Austria and into Bavaria,' he said. Recent supply contracts signed by Hungary and Romania with western European natural gas producers, and growing demand in Slovenia and Croatia, should also provide opportunities for OMV in offering west to east transmission services in addition to the traditional east-west route." 30 Apr 1998 Reuter

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79 "27 Feb 1998 ENI STEALS A MARCH WITH SURPRISE DEAL FOR NEW GAS PIPE AND IMPORTS FROM LIBYA: European Energy Report FT Bus Rep: Energy (Q3:60)

Italy's national hydrocarbons company ENI and Libya's National Oil Company(NOC) have reached agreement on a gas pipeline for imports to Italy of some6-8bncm/yr of natural gas. ENI will use the supply both at home in Italy andfor exports to other countries such as Albania and Bosnia.The surprise news of the agreement was announced by ENI president GuglielmoMoscato during a board meeting when the number of directors on the board wasincreased from seven to nine to reflect the voice of major privateshareholders now accounting for 49% of the shares of the company, stillunder the control of the treasury ministry."We have an agreement between ENI and NOC for the realisation of a gaspipeline between Libya and Italy," Moscato declared. "Only the finishingtouches are needed on the price of the gas."The price involves 50% of the gas to be imported by ENI, the other halfbelonging to the Libyan state company. Other details of the agreement werenot released.The ENI president said he expects the gas pipeline to be ready within threemonths of the beginning of construction. The pipeline is expected to passthrough the Sicilian channel and eventually link with the existing Transmedpipeline, further diversifying Italy's imports from its current sources -The Netherlands, Russia and Algeria.The ENI-NOC accord comes as ENI is continuing its tilt toward gas, its oiloperations now accounting for under 50% of its overall business - adevelopment hotly contested at home.The national anti-trust authority has declared that ENI has a "factualmonopoly" in gas imports, produces 90% of gas extracted in Italy anddistributes 95% of natural gas, in large part through its subsidiary Snam.The anti-trust panel has said the latter should be split up.Storage monopolyAccording to the anti-trust authority's figures, ENI or its companies alsocontrol 97% of transport and 100% of Italian gas storage.Currently, Italy obtains 12% of its gas imports from the Netherlands, 37%from Russia and 51% from Algeria. Total imports amount to 65%, or36.6bncm/yr, of national use at 56.6bncm. Italy's imports are likely tosurge, going up as much as 75% by the year 2005.The ENI-Libya deal also comes on the heels of another major ENI agreement inthe Middle East: Snam recently snapped up 45% of shares in the Amoco-Egyptliquefied natural gas (ELNG) project, another 45% belonging to Amoco and 10%to ELNG itself.The venture calls for liquefying and marketing natural gas from the Niledelta, initially directed to the large Turkish market and eventually forsale elsewhere also. The #1bn project foresees the first supply of gas tobegin in 2001 from an area believed to contain one of the world's largest

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natural gas reserves."80 25 May 1998 CROATIAN GAS, COAL LOBBIES CLASH OVER DOLLARS 1 BLN DEAL: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:78)

By DaVOR HUIc ZAGREBCroatia's two biggest monopolies, oil and gas firm INA and the electricityboard HEP are at loggerheads over a planned Dollars 1 billion thermal powerplant on the Adriatic coast.INA wants it to run on gas, not coal.'I hope reason will prevail. A discussion whether a coal-run thermal powerplant in Lukovo Sugarje is needed or not is beside the point,' INA's CEODavor Stern told said in a recent interview with Split-based daily SlobodnaDalmacija.Lukovo Sugarje is one of two locations on the Adriatic coast near Zadar,which HEP proposed for building a 2x350 MegaWatt coal-run thermal powerplant, seen as crucial for meeting increasing electricity consumption inCroatia.The other is Obrovac, some 50 km south of Sugarje, and the Croatianparliament is expected to confirm one of the locations in June.Stern said INA was prepared to link southern Croatia on the national naturalgas network only if a big consumer - a thermal power plant burning up to onebillion cubic metres of gas per year - is built on the coast, preferablynear Split.Otherwise, an investment of Dollars 800 million, needed to extend thepipeline from Vrbovsko, south of Karlovac, to Dubrovnik in southern Adriaticwould not be warranted.INA is drawing up ambitious plans for developing and upgrading natural gasnetwork in the country following a mega deal with Italy's Agip SpA, asubsidiary of Eni, on the exploitation of gas from the northern Adriatic andthe supply of a minimum of 2.2 billion cubic metres of natural gas per yearfor 24 years, starting in 2001.The deal also envisages construction of a 131-km (81-mile) sub-sea pipelinefrom the Italian coast to Pula on the Istrian peninsula, and an overlandpipeline of 215 km (125 miles) to Karlovac, 50 km south of Zagreb, worthDollars 300 million.Northern Croatia, including the capital Zagreb, is now supplied with gasfrom Russia through Hungary but the pipeline reaches as far south asKarlovac.The optional deal with Agip is growing by the day, with the two sidesalready negotiating to extend the deliveries to up to eight billion cubicmetres of gas per year, Stern said.But on Sunday, Hrvatska Elektroprivreda (HEP)'s CEO Damir Begovic pouredcold water over Stern's proposal, saying that gas thermal plants were notused as basic sources of electricity - which Croatia needs - but only asadditional sources in periods of maximum electricity consumption.

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'Given a catastrophic voltage situation between Rijeka and Split, we have topoint out, even insist, on one such (base) power plant,' Begovic told dailyJutarnji List in an interview.He said reasons for favouring coal were of 'technical and commercialnature', adding that Croatia cannot afford giving up such a cheap and easilyavailable fuel for basic thermal power plants.Stern's pro-gas statement came at an awkward time for HEP, which has beenlobbying for a coal thermal power plant in Dalmatia and has alreadypublished an international tender, for which bids are now being reviewed.Bidders include US firm AES, Steag of Germany, Britain's National Power andGEC-ALSTHOM, and German-British VEBA/PowerGen. Another US giant, Ensearchmade a bid before the tender was announced.HEP said it would soon chose two or three among the bidders for detailednegotiations, which should be completed by the end of the year or early nextyear.Perhaps a deciding element in the argument pitting Croatia's two largestcompanies, whose joint turnover accounts for more than 15 percent of thecountry's GDP, will be ecology.Stern's proposal coincides with growing public pressure, fed by the localpopulation, experts and environmental groups who oppose building a giantpoluter such as a 700-MW coal facility in a sensitive area like Sugarje.Sugarje is a tiny village situated on the slopes of the Mount Velebit, partof which is a national park, and only miles from popular touristdestinations on the island of Pag across the channel.A telephone voting on independent television network OTV showed last weekthat those opposing the plan to build a plant in Sugarje outnumber those infavour by 14-1.Some experts estimated that a coal plant would release 350,000 tonnes oftwo-percent sulphur acid, or the equivalent of 350 million tonnes of acidrains per year, some 22 billion cubic metres of fumes and large amounts ofnitrite oxides.An additional problem would be storing some 170,000 tonnes of waste peryear, and the release of billions of cubic metres of hot sea water - usedfor cooling - back into the sea.But Begovic denied that a coal power plant would polute the environment tothe extent claimed by some experts, adding that new generation coal powerplants are 'completely clean.'""09 Jan 1998 ENI/INA FIRM UP SUPPY DEAL: International Gas Report FT Bus Rep: Energy (Q3:36)

Italy's Eni has converted into a firm agreement its memorandum ofunderstanding signed with Croatia's Ina in November for long term supply ofnatural gas (IGR 335/1). Some changes, however, have been made. The annualquantity to be supplied has been lowered to "a minimum of 2.2 Bcm" insteadof "about 3 Bcm". The gas, for civil and industrial consumption and forelectric power generation, will be "of Italian production". Earlier mention

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has been dropped of taking some of the gas from Ivana, an offshore field inCroatian waters south of Pula, being developed by a joint venture betweenEni's Agip and Ina.The new agreement also stipulates that a pipeline will be laid to theCroatian coast from Casalborsetti near Ravenna, the collection andprocessing centre for Agip's north Adriatic gas. It will come into operationin 2001 and, with maximum throughflow capacity of 5 Bcm/yr, guaranteesupplies to Croatia for 24 years, with possibility of extension.Eni's announcement makes no reference to a second line envisaged in thememorandum, to be laid some 200 km over land from near Pula on the coast toKarlovac short of the Croatian capital of Zagreb; details of this willpresumably be settled later. The agreement was signed between the two stateowned corporations on 16 December during a state visit to Croatia byPresident Oscar Luigi Scalfaro. Signatories were Eni chairman GuglielmoMoscato and Ina general manager Davor Stern. They also took decisions on thebuilding of new petrol service stations in Croatia and on transportation ofcrude from the Black Sea to the Adriatic and central Europe."81 23 Mar 1998 GERMANY'S WINTERSHALL EYES ROMANIAN GAS PROJECT: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:34)

BUCHAREST German energy group Wintershall AG, a subsidiary of BASF AG, has signed accords for three projects with Romania worth at least Dollars 76 million on gas transportation and storage, government sources said on Monday.The projects involve construction of a pipeline linking Romania's gas pipelines to a main pipeline coming from Russia, via the ex-Soviet republic of Moldova as well as gas storage facilities and rehabilitation of the Romanian pipeline network.The signing ceremony took place during a visit by German Economics Minister Guenter Rexrodt and about 100 businessmen representing some 50 German companies.Under the accord signed with Romania's Romgas RA gas authority, the Dollars 56 million pipeline would link the city of Iasi, 400 km (250 miles) northeast of Bucharest, to the town of Balti, in the ex-Soviet republic of Moldova, the sources said.The project would help Romania boost volumes of gas imports from Russia, the source of most of its purchases.Commercial production of gas is on a slow decline in Romania and gas imports from Russia amounted to over eight billion cubic metres last year.A Dollars 20 million gas storage facility planned near the eastern town of Roman and the rehabilitation of Romania's ageing gas pipeline network were also part of the package, but no figures were provided for the project.The accords signed on Monday are likely to strengthen Wintershall's presence in the Balkan country.In December 1995, Romgaz linked up with Russo-German Wintershall Erdgas Handelshaus Gmbh (WIEH) in a joint venture called Wirom Gas SRL to import Russian gas for Romania. Under the deal, Wirom Gas acts as an agent for WIEH to market Russian gas in the country. 82 23 Mar 1998 GERMANY'S RUHRGAS OPENS WEST GAS ROUTE FOR ROMANIA: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:28)

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BUCHAREST Germany's Ruhrgas AG on Monday signed an accord to supply Romania 500 million cubic meters of natural gas per year starting next year, in a major move to find an alternative to traditional Russian imports.Government sources said under the accord signed with the Romgas RA gas authority that deliveries of gas would start with the 1999/2000 cold season.The gas would transit Austria and Hungary, marking Romania's first link to West European gas suppliers. Costs related to transit would be negotiated with the two countries eventually, the sources said.Supplies could gradually increase to up to 2 billion cubic metres by the year 2005, they also said.Romania, where commercial production of gas has recorded a decline over past years, depends heavily on Russian gas imports to meet local demand. Russian gas imports stood at over 8 million cubic metres last year.On Monday, Romgas also signed accords with Germany energy group Wintershall AG, a subsidiary of BASF AG , for projects worth at least Dollars 76 million on gas transportation and storage.

83 "15 May 1998 Weekly Economic Report: Russia: Gazprom Completes Takeover of Bulgarian Joint Venture: BBC Summary of World Broadcasts (Q1:23)

Sources:ITAR-TASS news agency (World Service), Moscow, in Russian 1452 gmt 7 May 98BTA news agency, Sofia, in English 1635 gmt 7 May 98Russian gas company Gazprom took sole control of the Russian-Bulgarian jointventure Topenergy on 7th May, Russia's ITAR-TASS news agency reported.The move, agreed between Gazprom and the Bulgarian government on 27th April,was approved by a general meeting of Topenergy shareholders in Varna.All the Bulgarian shareholders, including the Bulgargaz national gascompany, have sold their holdings to Gazprom and left the board. SergeyPashin remains executive director of Topenergy.ITAR-TASS said Topenergy would become the main supplier of gas to Bulgaria,controlling transit to Turkey, Greece and Macedonia and taking part in thedevelopment of the Bulgarian gas distribution system.The Bulgarian news agency BTA reported that Gazprom Vice-President BogdanBudzulyak was elected chairman of the board of directors of the nowwholly-owned subsidiary of the Russian gas giant.The agency recalled that Topenergy had originally been set up by Gazprom andBulgargaz in 1995 as a 50:50 joint venture. Later Bulgargaz's stake wasreduced to 33.5 per cent."84 "08 May 1998 Weekly Economic Report: Russia, Bulgaria Sign Long-Term Gas Supply Deals: BBC Summary of World Broadcasts (Q1:37)

Sources:Interfax news agency, Moscow, in English 1326 gmt 27 Apr 98Bulgarian Radio, Sofia, in Bulgarian 1200 gmt 27 Apr 98

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Russia and Bulgaria signed two long-term contracts in Sofia on 27th April,for gas supplies to Bulgarian consumers and for gas transit to foreignmarkets up to the year 2010, Interfax news agency reported.'Thus all issues and problems pertaining to Russian gas supplies and gastransit have been settled,' a member of the Russian delegation was quoted assaying.The first contract, signed by the Russian-Bulgarian Topenergy joint ventureand Bulgaria's Bulgargaz company, envisages that Russian gas exports toBulgaria will rise from 6bn cubic metres in 1998 to 8bn cubic metres in2010. Gas for Bulgargaz will be supplied by Topenergy, which is expected tobecome fully owned by the Russian Gazprom company at the beginning of May,the agency said.The second contract was signed by the Gazeksport foreign trade firm, whichis fully owned by Gazprom, and Bulgargaz. This year Bulgargaz will ensurethe transit of 9.9bn cubic metres of Russian gas to foreign markets viaBulgaria, including 8bn cubic metres to Turkey.By the year 2010, the transit of Russian gas via Bulgaria will rise to18.7bn cubic metres, including 14bn for Turkey and 4.7bn for Greece andMacedonia, the agency said.Bulgarian radio said the signing ceremony was attended by Gazprom presidentRem Vyakhirev. Vyakhirev and Bulgarian Deputy Prime Minister EvgeniBakurdzhiev signed a memorandum on the further development ofBulgarian-Russian relations in the area of natural gas.The price of the gas was not announced, but Evgeni Bakurdzhiev said afurther discount was achieved during the last round of talks. Under the newagreement, the transit taxes will be paid not for the actual quantity of gaspassing through the pipeline, as has been the case until now, but for theamount originally declared, the radio said."85 "13 May 1998 ITALY'S ENI TO DOUBLE GAS VIA SLOVAKIA: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:36)

BRATISLAVAItalian energy group ENI on Wednesday said it planned to double the amountof Russian gas it imports via Slovakia to around 28 billion cubic metres ayear by the year 2008'There is a great potential for development of transport of gas to Italythrough Slovakia's gas pipelines,' ENI's Chief Executive Officer, FrancoBernabe told a joint-news news conference with Slovak state-owned gasdistribution monopoly SPP in Bratislava'Currently the transport of gas through Slovakia amounts to 14 billion cubicmetres a year and we want to increase this volume to around 28 billion cubicmetres a year by the year 2008,' Bernabe addedENI, Italy's third biggest company after carmaker FIAT and state holdingcompany IRI, signed a strategic alliance with Russian gas monopoly Gazpromin early FebruaryBernabe also said he and SPP director Jan Ducky discussed 'possible future

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cooperation between ENI and SPP in third markets where the two companiescould proceed with joint forces'Neither ENI nor SPP officials disclosed any details about such plansSPP boss Ducky suggested that ENI may become involved in the privatisationof the Slovak monopoly gas network operator when a decision on a sell off ismade'Should SPP be privatised, then we would of course be interested in theparticipation of our partners,' Ducky told ENI's BernabeSPP, one of the most profitable Slovak firms, is listed among Slovakia'sstrategic companies which have been excluded from the privatisation processDucky said SPP wanted to become part of ENI's broader involvements withAnglo-Dutch energy group Royal Dutch/Shell and Gazprom'We discussed with ENI representatives how this cooperation functions Wereally want to become part of this alliance,' Ducky saidSPP annually transfers around 80 billion cubic metres of Russian gas towestern Europe"86 "16 Mar 1998 SEVEROMORAVSKA ENERGETIKA ISSUES KC1BN WORTH OF BONDS: CSTK ECOSERVICE Reuter Textline (Q2:26)

OSTRAVASeveromoravska energetika (SME), the largest Czech power distributorsupplying 21 percent of all electricity in the country, has issued Kc1bnworth of bonds, structured and privately placed on the market by ING BaringsCapital Markets (CR). SME's Kamil Kocurek tells CTK.The issue, dated March 5, is of seven-year bonds payable in 2005 without thepossibility of earlier payment by the issuer. The bonds will bear a variableinterest rate derived from the 6-month PRIBOR. The entire issue has beenpurchased by the insurer Ceska pojistovna (CP).In order to safeguard itself against interest rate risks, SME was apparentlythe first Czech firm to conclude with CP an option agreement for the interstrate called CAP. The agreement will quarantee SME the maximum interest ratefor three years. The bonds have been quoted at the Prague Stock Exchange.SME will use the funds to finance its general needs, such as investmentsconnected with the firm's restructuring. The new structure is aimed atkeeping SME competitive also after the Czech Republic joins the EuropeanUnion whose legislation allows large cosumers of energy to choose theirsuppliers.SME, which last October conquered all Czech banks after being awardedlong-term BBB rating, has been planning to issue bonds since June 1996 whenshareholders approved the plan."87 "07 May 1998 LITHUANIA AB LIETUVOS ENERGIJA RATED BY FITCH IBCA: PR NEWSWIRE Reuter Textline (Q2:63) NEW YORKAB Lietuvos Energija has been assigned a 'BB+' long-term rating and a 'B' short-term rating by Fitch IBCA.Full-service utility Lietuvos Energija (LE), owned 86.5% by the Lithuanianstate, is the monopoly provider of electricity transmission and distributionsystems within Lithuania. LE also owns and operates generation plants equal

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to c44% of national installed capacity; these plants are, however,traditionally run at very low load factors, as 80%+ of Lithuania'selectrical power is generated by the independent, 100% state-owned Ignalinanuclear plant (IAE). The domination of the country's generation market bythe IAE complex - the world's largest nuclear site - is one of many legaciesof Lithuania's former role as a generation 'hub' designed to serve thegeneration needs of the northwestern Soviet Union. Of the other problemsinherited upon separation from the Soviet Union in 1991, the most notableare those related to an aging transmission infrastructure suffering fromhistoric underinvestment and questionable equipment quality.Current strengths include:- LE's significance to the national economy and monopoly position intransmission and, for the time being, in distribution. The National EnergyStrategy envisions the unbundling and sale of distribution operations in thenear-to medium-term, followed at a much later date by the unbundling of thegeneration assets. LE's long-term future would be to remain as the backboneof the power system, operating the national grid and centraldispatch/scheduling functions, as well as superintending valuable exports;- The Lithuanian state has displayed tangible support for LE'smodernization. Examples include the subsidy and eventual removal ofloss-making district heating operations; central government action to ensurepayment of arrears by municipal debtors; greater freedom granted to the newtariff-setting regulatory body; and with a proportion of LE's own fundingeither on-lent state borrowings or guaranteed by the state;- LE's own financial position has improved markedly over the past two years,through a combination of the removal of the district heating assets andsharp reductions in arrears rates. This has been helped by the fact thatLithuania does not suffer from the same barter-plagued nonpayment problemsaffecting numerous other parts of the former Soviet Union. Coverages ofexisting debt-servicing requirements will come under pressure as investmentincreases, but are anticipated to remain comfortable for the current ratingcategory.Weaknesses include:- The transmission asset base has suffered from years of underinvestment.Catch-up expenditure has resulted in a marked improvement in equipmentfailure rates, notably in the substation network, but Fitch IBCA anticipatesthat much of this future expenditure will require debt-financing;- The regulatory system has a limited track record, and the application oftariff formula based on cost recovery has yet to display real consistency.Although tariff inversion, where industrial customers overtly subsidizedomestic users, has been removed, average tariffs remain among the lowest inEurope;- The power system as a whole continues to be dependent on the output of theIAE nuclear plant to provide lower-cost electricity for domestic and exportconsumption. This dependence is mitigated physically by LE's substantialconventional generation capacity and financially by the terms of both export

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contracts and of the purchase contracts between LE and IAE. Fitch IBCA hasfactored the low residual risk of IAE supply failure into its current ratingassessment.A Fitch IBCA research report examining the environment of the Lithuanianpower sector, the regulatory background and tariff reform, the condition ofand expected implications of expenditure on the aging asset base, fuel andexport agreements and LE's relationship with the nuclear sector will beavailable from Fitch IBCA's London office later this month. Copies of FitchIBCA's European Power Utilities report, analyzing the fundamental creditissues affecting power utilities in 25 countries in western, central andeastern Europe, are available now."88 89 07 May 1998 EBRD PLANS DOLLARS 110 MLN FOR ROMANIA ENERGY SECTOR: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:32) BUCHAREST The European Bank for Reconstruction and Development (EBRD) plans Dollars 110 million financing for two projects to support reforms in Romania's energy sector this year, a bank official said on Thursday. Ananda Covindassamy, director of EBRD team power and energy utilities, told a news conference some Dollars 70 million would go to one project, worth a total of Dollars 180 million, involving the building of a co-generation power plant in Bucharest. 'We are considering to be investors, not lenders in this project,' he said. He said another Dollars 40 million was to be disbursed under a project focusing on power distribution, worth an estimated Dollars 150-200 million. 'These (accords) are for signing in 1998,' Covindassamy said, adding that the EBRD had already committed Dollars 200 million for upgrading three of Romania's thermal power plants. Covindassamy said EBRD and Romania's Renel electricity authority signed on Thursday an accord under which EBRD would cover the costs related to consultancy for the privatisation of two power plants.Renel is plagued by high wage bills from an oversized workforce and its restructuring and privatisation would have big implications for other energy-intensive sectors.Government plans call for initially splitting off parts of utilities to function as independent companies. Broader selloffs would follow later.Last month, EBRD officials said the bank was considering around Dollars 600 million in financing for Romania over the next 18 months under projects focusing on privatisation of energy, telecommunications and banking sectors.The EBRD portfolio for Romania stands at about Dollars 1.4 billion, of which some 60 percent funded public sector projects.90 "04 Jun 1998 ALBANIA TO RECEIVE 117M DOLLARS FOR POWER SUPPLY PROJECT: BBC MONITORING SERVICE - EASTERN EUROPE Reuter Textline (Q2:19)

Source: ATA news agency, Tirana, in English 1018 gmt 1 Jun 98Some 117m dollars have been earmarked for the rehabilitation of Albania'selectric grid, the Albanian news agency ATA reported on 1st June.The money will be provided by the European Bank for Reconstruction andDevelopment, while the Japanese Overseas Economic Cooperation Fund and theSwiss and Italian governments will also supply grants, the agency said.According to specialists of the Albanian Energy Corporation, the project,which started in June 1996, is to be completed by June 2001.

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One of the priority objectives of the project is to start privatization ofthe sector, starting with the sale of 30% of the shares in the deliverynetworks of the towns of Elbasan, Vlore and Shkoder, the agency reported."

96 " Electricity generator and distributor Hungarian Electricity Works (MVM Rt) lost assets because of the privatisation of electric utilities and this loss should be replaced by a capital injection and, if need be later, by a modification of its capital structure, the State Privatisation and Holding Company (APV Rt) decided on Wednesday. No further details were disclosed. The capital injection is necessary because MVM Rt's privatisation is now in preparation, and its creditworthiness must be enhanced in order to launch the company on the Budapest Stock Exchange, the announcement given to MTI, continued. The capital injection must be decided upon by the government, APV Rt. said. The injection will take the form of both cash and share allocations. The cash part could be financed by APV Rt, from its special fund for managing problems resulting from privatisations. In the wake of a relevant government decree, APV Rt's board also co-opted on Wednesday a new member, Mr Jozsef Barta, up to now a department head in the Ministry of Industrry, Trade and Tourism." 15 Apr 1998 MTI-Econews97 21 May 1998 Weekly Economic Report: Romania: Freeze on Electricity Utility Lifted: BBC Summary of World Broadcasts (Q1:25)

Source: Rompres news agency, Bucharest, in English 0951 gmt 13 May 98 Prime Minister Radu Vasile has lifted the freeze on the accounts of the national power utility Renel and agreed to unblock them in order to carry out a financial audit to establish Renel's debts to the budget, the Romanian news agency Rompres reported on 13th May.Renel, the biggest company in the Romanian economy, was on the brink of collapse because of the Finance Ministry's decision of 8th May to freeze its accounts in order to force Renel to pay its debts, the news agency added.The secretary of state at the Finance Ministry, Corneliu Gorcea, took the decision without consulting the finance minister or the prime minister.On 11th May, Prime Minister Radu Vasile said through his spokesman Rasvan Popescu that he agreed with the decision because Renel charged double the price of imported electricity. In addition, Renel's monthly wage bill was huge and could not be justified by its production, the news agency quoted the prime minister as saying.The decision caused concern among miners and metallurgy workers, the biggest consumers of energy in the Romanian economy, Rompres added.The government will probably decide to accept a rescheduling of Renel' s debts, the news agency said.

98 "22 May 1998 LITHUANIA-GOV TO REPAY 85.6 MLN LITAS TO ENERGY FIRM: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:25)

VILNIUSThe cabinet is to discuss on Wednesday repaying 85.6 million litas tostate-owned utility Lithuanian Energy for losses it suffered for supplyingheating energy to consumers at soft rates.'The energy price commission recommends accepting 85.62 million litas as astate debt to Lithuanian Energy for heating energy supplied at soft terms in

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the fourth quarter of 1996,' the ministry said in a statement.The state's debt to the company is to be financed by issuing governmentT-bills. The money would be transferred to the company by December 31, 1998,subject to cabinet approval, the statement added.The government earlier decided to ask parliament to accept as state debt a267.4 million litas Lithuanian Energy loss due to subsidised consumer energyprices, value added tax priveleges and interest rates for bank loans in thefirst half of 1997.Lithuanian Energy reported a 216.82 million litas retained loss at the endof 1997 but it was reduced to 156.45 million litas after the companyreported a net profit of 61.67 million litas in the first quarter of theyear."99 "13 May 1998 LITHUANIA-CABINET TAKES ON ENERGY, GAS SECTOR DEBTS: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:30)

VILNIUSLithuania's government said on Wednesday that the cabinet decided to acceptas state debt losses by Lithuanian Energy , Lithuanian Gas and some regionalheat energy producing firms.'The cabinet decided to approve in principle these losses as domestic statedebt but the sums have still to be finalised,' the government's press officetold ReutersThe total loss by energy sector companies totalled 335.77 million litas andthe government is to issue T-bills to cover the debt, subject toparliamentary approval.State-run utility Lithuanian Energy suffered a loss of 267.4 million litasdue to subsidised consumer energy prices, value added tax privileges andinterest rates for banking loans in the first half of 1997, the press officesaid.Lithuanian Energy reported a 216.82 million litas retained loss at the endof 1997 but it was reduced to 156.45 million litas after the companyreported a net profit of 61.67 million litas in the first three months ofthe year.Lithuanian Gas suffered losses of 47.01 million litas, the bulk of itstemming from overdue fines for gas supplied by Russia's Lentransgaz in1992-1993.Some heating energy producing companies also suffered a loss of 21.36million litas, the statement added."91 " Representatives of the Croatian Electric Utility (HEP) and a consortium of 19 European and world banks on Friday 22nd May) signed a contract on a syndicated international loan worth DM 160m. HEP intends to use the loan for the reconstruction of a thermoelectric power plant in Zagreb worth DM 100m and also for the construction of a 400-kV Croatia-Hungary transmission line worth DM 50m, as well as for the movement of a gas power plant in Zagreb, which will be an investment worth DM 10m .." #28 May 1998 #BBC SWB92 " Croatian power board Hrvatska Elektroprivreda (HEP) on Monday released details of a 160 million mark syndicated loan it signed last week, saying it would draw it in two tranches. HEP

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did not specify the amounts of each tranche. The first must be repaid within three years at an annual rate of 85 basis points over the London Interbank Offered Rate (Libor), it said. The second tranche will be repaid at Libor +90 basis points in five semi-annual instalments after a three-year grace period. The loan was granted last Friday by a consortium of 18 foreign banks, led by Banque Nationale de Paris. Local Dalmatinska Banka joined the syndicate. HEP will use some 100 million marks to reconstruct and expand a 150 MegaWatt thermal powerplant on the outskirts of Zagreb. The rest goes toward building a 400 kW power line between Croatia and Hungary and moving Dujmovac thermal powerplant to another location west of Zagreb." #Reuters #25 May 199893 " The Matrai Power Plant (Matrai Eromu Rt.) will soon receive a Ft 45 billion (Dollars 214 mn)loan from a syndicate of seven banks. The syndicate is led by OTP Bank Rt., theCommercial and Credit Bank (K&H) and BNP Dresdner Bank, each contributing Ft8.33 billion, while Credit Lyonnais Bank Rt., the Hungarian Foreign Trade Bank (MKB),the Hungarian Development Bank and Creditanstalt Rt. will give Ft 5 billion each. Theloan will come with a 15-year run, re-payment starting in 2003. As regards the interest, noconcrete figures have been revealed, only the fact that it will be calculated on the basis ofthe Budapest interbank interest rate (Bubor)." 8 May 1998 Heti Vilaggazdasag94 " Dec 1997 (Abstract and full text) INA at the deep end: Corporate Finance ABI-INFORM (Q1:55)

Abstract: Croatian oil and gas company INA was able to put together asyndicated loan of Dollars 150 million this past year.

Full text: Croatian oil and gas company INA was in urgent need ofmedium-term financing. In the past, the company had been able to access onlyshort-term trade finance and expensive loans taken out during the Yugoslavcivil war. Now it faced greater capital needs. It wanted to refinance theDollars 50 million of high-cost loans and spend about Dollars 100 million onimprovements to refineries and new petrol stations.A syndicated loan was the obvious answer but when Bankers Trust approachedpotential syndicate members the terms it was asking on behalf of the companywould have seemed aggressive, if not outrageous. No other entity from thecountry had ventured beyond the three-year maturity achieved by the Republicof Croatia in 1996 in a deal that had cost the sovereign 175 basis pointsover Libor. INA was bold enough to ask for five-year money at just 75bp overLibor.Bankers Trust's line was that the market in central Europe and Croatia wasmoving quickly. However, the sovereign loan remained the only Croatianbenchmark, leaving the bank's marketing people to point to the ever tougherpricing and seven-year credits being raised successfully by top corporatesin Hungary and the Czech Republic.Investors were sceptical at first. Some said that they did not have linesfor Croatia; others did not have lines for corporates in Croatia. And, saysStephen O'Neil, vice-president at Bankers Trusts' Emerging Europe,Middle-east and Africa merchant bank: 'An additional challenge was thetenor. Most institutions' lines were short-term, so we had to convince

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people to sell to their credit committees the logic of a five- yeartransaction, which was clearly appropriate for a project-related financing.'As weeks passed the terms became more acceptable, with more deals emergingfrom the region on ever-tighter conditions - Hungarian companies wereborrowing at 22.5bp over Libor on five-year refinancings.The company and its arrangers had cleverly and bravely structured theDollars 150 million deal in anticipation of the improving environment. Thereward came when it was fully subscribed and signed at the beginning of May.Says Vedran Perse, INA's managing director of finance in London: 'I try tobe cynical and critical about our banks but the marketing job that they didwas excellent.' Now INA has had a taste of the international debt markets it is keen for more. Expect it to launch a Eurobond in 1998, probably becoming the first Croatian corporate to do so." 95 Euromenoy 10 May 1998100 "31 Mar 1998 EESTI GAAS TO SACK MORE THAN 200 EMPLOYEES: REUTER NEWS SERVICE - EASTERN EUROPE Reuter Textline (Q2:19) TALLINNEstonian Gas (Eesti Gaas) plans to sack more than 200 employees by the endof 1999 in an effort to cut costs, newspaper Aripaev said on Tuesday.The newspaper said that its supervisory board will on Thursday approve atime schedule to cut the number of employees from the current 720 to 500.The newspaper quoted Estonian Gas chairman Aarne Saar as saying that EestiGaas will merge its five subsidiaries with the parent company.'We have taken into account that we will save about 30 million kroons withmerger of subsidiaries and the cut in the number of employees,' he said.Estonian Gas's key shareholders are Gazprom and German Ruhrgas."101 " Representatives of the two main trade unions in the energy sector, along with Ministry of Finance Peter Medgyessy and Ministry of Privatisation Judit Csiha, signed an agreement on Friday on the use of a HUF 8.6bn fund established from 5pc of privatisation revenues in the energy sector. The sum may be used by December 31, 2004 and under certain conditions to finance the payment of unemployment benefit supplements, for retraining, and for early retirement payments of up to HUF 600,000 per person. Trade unions can establish two aid funds and use a one-time sum of 1pc of the HUF 8.6bn to establish technical conditions this year. Payments from the HUF 8.6bn fund will be made annually on conditions specified in the budget law. This year's payment will be financed from privatisation reserves. A total of over 40,000 people are employed in the electricity sector, a decrease of 9,000 since privatisation began in 1995." 8 May 1998 MTI-Econews102 "Ownership and Performance in Electrical Utilities" by Michael Pollitt . Oxford University Press . 1995

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· Web viewTrends in Energy privatisation in central and eastern Europe, 1998. Author(s): David...

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